16/7/11
The Irish Times - Saturday, July 16, 2011
EU leaders agree to emergency summit over debt crisis
ARTHUR BEESLEY, MARK HENNESSY and SIMON CARSWELL
EUROPEAN COUNCIL president Herman Van Rompuy has called an emergency summit of euro zone leaders next Thursday as it seeks to prevent contagion from the debt crisis spreading to Italy and Spain.
News of the summit came as five Spanish banks ranked among eight institutions to fail a new stress test on European banks that revealed a total capital shortfall of approximately €2.5 billion. This figure was considerably lower than the estimates of many investors.
Ireland’s three remaining banks – Allied Irish Banks, Bank of Ireland and Irish Life Permanent – each passed the test, but the criteria were less severe than in a separate examination of Irish banks in March. The tests revealed them to have large holdings of Irish Government debt.
Mr Van Rompuy had been trying for days to call a summit in an attempt to bring divided euro zone leaders together over the involvement of private creditors in a second international bailout for Greece.
Confusion over the new rescue package has stoked a fresh wave of turmoil in markets, with Spanish and Italian borrowing costs rising to levels unseen since the euro was introduced in 1999.
While this has led euro zone finance ministers to examine a deeper European response to the debacle, German chancellor Angela Merkel resisted coming to a summit on the basis that the conditions would not be right for such a meeting until a deal is imminent.
Even as she changed heart last evening, there was scepticism in Berlin and Brussels about the merits of calling an emergency gathering at a time when many tricky outstanding questions remain unresolved.
However, a senior European envoy said yesterday the view has gained force among key states that an upsurge in volatility this week called for more resolute action.
“Our agenda will be the financial stability of the euro area as a whole and the future financing of the Greek programme,” said Mr Van Rompuy in a brief statement last night.
“I have asked for the preparatory work to be brought forward inter alia by the finance ministries.”
Dr Merkel is expected to come under pressure at the meeting to provide definitive support for an escalation of Europe’s campaign to tackle the 21-month debt crisis.
This includes an overhaul of the European Financial Stability Facility bailout fund, giving it powers to charge lower interest on its loans and extend their maturity dates.
Guarantees for new bond issues by bailout recipients are on the table, as is the prospect of the fund lending to countries so they can buy back their own bonds at market prices, thereby reducing their debt burden.
The banks that failed the stress test included two from Greece and one from Austria.
Another 16 came close to failing and one German institution pulled out of the exercise before the results were made public.
Following sharp criticism of the previous test last year, seen as far too weak, the European Banking Authority said the new test had been “deliberately severe”.
The test did not account for sovereign default, but banks were obliged to reveal their holdings of sovereign debt.
This was designed to facilitate an examination of their holdings by market analysts.
AIB was revealed to have the biggest holdings of risky sovereign debt, with €5 billion of Irish bonds, €816 million of Italian bonds, €335 million of Spanish bonds, €243 million of Portuguese bonds and €40 million of Greek bonds.
Bank of Ireland has €5.5 billion of Irish sovereign debt but just €30 million of Italian debt.
Irish Life and Permanent has €1.8 billion of Irish bonds but no other risky EU sovereign debt.
EU leaders agree to emergency summit over debt crisis
ARTHUR BEESLEY, MARK HENNESSY and SIMON CARSWELL
EUROPEAN COUNCIL president Herman Van Rompuy has called an emergency summit of euro zone leaders next Thursday as it seeks to prevent contagion from the debt crisis spreading to Italy and Spain.
News of the summit came as five Spanish banks ranked among eight institutions to fail a new stress test on European banks that revealed a total capital shortfall of approximately €2.5 billion. This figure was considerably lower than the estimates of many investors.
Ireland’s three remaining banks – Allied Irish Banks, Bank of Ireland and Irish Life Permanent – each passed the test, but the criteria were less severe than in a separate examination of Irish banks in March. The tests revealed them to have large holdings of Irish Government debt.
Mr Van Rompuy had been trying for days to call a summit in an attempt to bring divided euro zone leaders together over the involvement of private creditors in a second international bailout for Greece.
Confusion over the new rescue package has stoked a fresh wave of turmoil in markets, with Spanish and Italian borrowing costs rising to levels unseen since the euro was introduced in 1999.
While this has led euro zone finance ministers to examine a deeper European response to the debacle, German chancellor Angela Merkel resisted coming to a summit on the basis that the conditions would not be right for such a meeting until a deal is imminent.
Even as she changed heart last evening, there was scepticism in Berlin and Brussels about the merits of calling an emergency gathering at a time when many tricky outstanding questions remain unresolved.
However, a senior European envoy said yesterday the view has gained force among key states that an upsurge in volatility this week called for more resolute action.
“Our agenda will be the financial stability of the euro area as a whole and the future financing of the Greek programme,” said Mr Van Rompuy in a brief statement last night.
“I have asked for the preparatory work to be brought forward inter alia by the finance ministries.”
Dr Merkel is expected to come under pressure at the meeting to provide definitive support for an escalation of Europe’s campaign to tackle the 21-month debt crisis.
This includes an overhaul of the European Financial Stability Facility bailout fund, giving it powers to charge lower interest on its loans and extend their maturity dates.
Guarantees for new bond issues by bailout recipients are on the table, as is the prospect of the fund lending to countries so they can buy back their own bonds at market prices, thereby reducing their debt burden.
The banks that failed the stress test included two from Greece and one from Austria.
Another 16 came close to failing and one German institution pulled out of the exercise before the results were made public.
Following sharp criticism of the previous test last year, seen as far too weak, the European Banking Authority said the new test had been “deliberately severe”.
The test did not account for sovereign default, but banks were obliged to reveal their holdings of sovereign debt.
This was designed to facilitate an examination of their holdings by market analysts.
AIB was revealed to have the biggest holdings of risky sovereign debt, with €5 billion of Irish bonds, €816 million of Italian bonds, €335 million of Spanish bonds, €243 million of Portuguese bonds and €40 million of Greek bonds.
Bank of Ireland has €5.5 billion of Irish sovereign debt but just €30 million of Italian debt.
Irish Life and Permanent has €1.8 billion of Irish bonds but no other risky EU sovereign debt.
11/7/11
The Irish Times - Monday, July 11, 2011
European leaders to consider default as part of Greek rescue
ARTHUR BEESLEY in Brussels
EURO ZONE finance ministers are considering a fundamental revision of their strategy in the Greek debt crisis, a move which comes amid an escalation of market pressure on Italy over its high debt.
At issue as the ministers meet today in Brussels is whether they agree to look again at a German debt-swap plan in which Greek investors would be urged to exchange their bonds for debt with a longer maturity.
This plan was scrapped weeks ago on the basis that it would lead to a default rating on Greek debt, something which is resolutely opposed by the European Central Bank.
The latest rethink was prompted by a warning from rating agents that an alternative French plan, perceived to be softer on investors than the German proposal, would lead to a default rating.
The uncertainty of the outlook for Greece has fuelled weeks of turmoil on financial markets, raising questions over the viability of the Government’s plan to re-enter bond markets next year.
However, a spike in Italian borrowing costs last week has prompted a new sense of urgency in the talks.
European Council president Herman Van Rompuy has called top EU officials to a special meeting in Brussels this morning before finance ministers gather in the city.
While Mr Van Rompuy meets EU Commission chief Jose Manuel Barroso for breakfast on Mondays, they will be joined today by European Central Bank chief Jean-Claude Trichet, economics commissioner Olli Rehn and Jean-Claude Juncker, who presides over meetings of the euro zone ministers.
Talks on the German plan are not yet well advanced. However, any decision to proceed down that road would mark a significant shift in the ministers’ strategy on Greece.
Until now they have always steered clear of anything which raised the prospect of a default rating.
This position was rooted in fear of contagion in financial markets. However, the ministers’ efforts to avoid a default rating while ensuring private creditor participation in the Greek rescue effort have proved fruitless.
At their meeting today, they are expected to examine the feasibility of moves which would lead to a “selective” or partial, temporary default on some Greek debt without leading to a full-blown default.
Senior officials acknowledge, however, that this is inherently risky and unpredictable with a clear danger of an upsurge of tension in markets.
Confrontation with the ECB would also be inevitable, as it has issued dire warnings that such manoeuvres would prove self-defeating by stoking volatility in markets.
Also on the table is the revival of a plan rejected four months ago in which the euro zone bailout fund — the European Financial Stability Facility — would intervene in markets to buy Greek debt at a discount to its original value.
Consideration may also be given to another lowering of the interest rate on Greece’s rescue loans.
European leaders to consider default as part of Greek rescue
ARTHUR BEESLEY in Brussels
EURO ZONE finance ministers are considering a fundamental revision of their strategy in the Greek debt crisis, a move which comes amid an escalation of market pressure on Italy over its high debt.
At issue as the ministers meet today in Brussels is whether they agree to look again at a German debt-swap plan in which Greek investors would be urged to exchange their bonds for debt with a longer maturity.
This plan was scrapped weeks ago on the basis that it would lead to a default rating on Greek debt, something which is resolutely opposed by the European Central Bank.
The latest rethink was prompted by a warning from rating agents that an alternative French plan, perceived to be softer on investors than the German proposal, would lead to a default rating.
The uncertainty of the outlook for Greece has fuelled weeks of turmoil on financial markets, raising questions over the viability of the Government’s plan to re-enter bond markets next year.
However, a spike in Italian borrowing costs last week has prompted a new sense of urgency in the talks.
European Council president Herman Van Rompuy has called top EU officials to a special meeting in Brussels this morning before finance ministers gather in the city.
While Mr Van Rompuy meets EU Commission chief Jose Manuel Barroso for breakfast on Mondays, they will be joined today by European Central Bank chief Jean-Claude Trichet, economics commissioner Olli Rehn and Jean-Claude Juncker, who presides over meetings of the euro zone ministers.
Talks on the German plan are not yet well advanced. However, any decision to proceed down that road would mark a significant shift in the ministers’ strategy on Greece.
Until now they have always steered clear of anything which raised the prospect of a default rating.
This position was rooted in fear of contagion in financial markets. However, the ministers’ efforts to avoid a default rating while ensuring private creditor participation in the Greek rescue effort have proved fruitless.
At their meeting today, they are expected to examine the feasibility of moves which would lead to a “selective” or partial, temporary default on some Greek debt without leading to a full-blown default.
Senior officials acknowledge, however, that this is inherently risky and unpredictable with a clear danger of an upsurge of tension in markets.
Confrontation with the ECB would also be inevitable, as it has issued dire warnings that such manoeuvres would prove self-defeating by stoking volatility in markets.
Also on the table is the revival of a plan rejected four months ago in which the euro zone bailout fund — the European Financial Stability Facility — would intervene in markets to buy Greek debt at a discount to its original value.
Consideration may also be given to another lowering of the interest rate on Greece’s rescue loans.
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