Eurozone refuses Greece 12bn euro ‘bridging’ payment

20th June 2011

The Eurozone nations have refused to give Greece a euro 12bn ‘bridging’ payment and delayed a decision on doing so until July 3rd placing immense pressure back on to the Greek Parliament to pass austerity measures.

Here is this morning’s statement from the Eurogroup and MSNBC gives a lot of the background here

Late last night Panpadreou told other EU states that next year Greece would need another euro110bn bailout, the same amount as this year, and yet another increase in the estimated sum required.

But one commentator from Asia believes that any deals will just buy time and even suggests that is all an intervention to save Lehman Brothers would have done.

Writing in the Asia Times, Doug Noland says:  “As we are witnessing with Greek, Portuguese and Irish debt (and credit default swap) prices, market troubles often manifest when unanticipated policy uncertainties force the marketplace to take a clearer look at the fundamentals underpinning a debt structure – only to grimace. The problem today is not really Greece. A dysfunctional global credit system has created tens of trillions of unsound debt – and rapidly counting.”

On Creditwritedowns Ed Harrison lists a host of big political concerns. His fifth is all about the risk of contagion.

“Yields on Portuguese and Irish bonds are at record spread to German bonds. As more and more time passes, the negative sentiment surrounding Greece is making the likelihood of an eventual Portuguese and Irish default that much greater. Spain and Italy have also seen the negative effects of financial contagion cause their bonds to sell off and CDS to rise. The only reason we have not had a cataclysmic crisis is because Spain and Italy have decoupled from the periphery. If Spain or Italy were to recouple, a major financial crisis and economic downturn would ensue.”

Here the Economist’s European columnist Charlemagne asks why on earth negotiate through the night only to announce a delay.

Jean-Claude Juncker, the prime minister of Luxembourg, spells out the current position: “I cannot imagine for one second that we would commit to finance Greece without knowing that the Greek parliament has given its vote of confidence to the government, and that it has taken on Greece’s commitments [to the EU/IMF].”

On the Economist comment boards AJ Maher says it’s the future of the euro not Greece that has so many European officials worried: “Of course the markets have already priced in the costs of default on Greece. That is why Greek debt is already junk. It isn't the much demonised "credit event" which is keeping the eurocrats awake – it is the real likelihood of the complete disintegration of the euro. Haircuts imposed via currency devaluation is something the markets understand and can tolerate – but it is total anathema to the functionaries in Brussels and Frankfurt,” he says.

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