Greece: Will it default on its debt?

23rd June 2011

David Cameron has drawn a red line and refused to become involved in a "Greece II" rescue package in a battle with the German Chancellor who insists that a British contribution will be necessary, says the report.

"We were not involved in the first Greek bailout, we are not members of the eurozone and we are not going to become members of the eurozone as long as I'm standing here," he said.

"I don't believe the European financial mechanism should be used for Greece and we have made very clear within Europe we don't think that's appropriate and I don't believe that should happen."

Another report in the Daily Telegraph says that the Prime Minister David Cameron will add his voice to non-euro G7 members who are increasingly concerned that EU dithering over how to deliver a second Greek bailout risks a "spill over" effect into a global economy already weakened by recession. He urges the EU leaders to agree a plan and stick to it.

The Guardian adds that Cameron may be heading for a rocky ride at the two day EU summit in Brussels.

First, Germany has signalled that Britain will have to take part in the new EU bailout for Greece. However, Cameron has said unequivocally on numerous occasions that Britain will not take part in any EU bailout of Greece.

Also, there is anger in Brussels at the suggestion by Downing Street on Wednesday that Cameron would challenge the European Commission on immigration. Cameron was building an alliance with other countries to block a proposal by José Manuel Barroso, the European Commission president, on asylum seekers.

There are three problems with delaying the resolution to the Greek crisis, says Robert Farago, head of asset allocation at Schroders.

He says: "An orderly restructuring is in everyone's best interest and is our central scenario. The worst case scenario of a disorderly default that triggers contagion across the European banking and sovereign debt markets appears unlikely. We believe that the amount of Greek debt still held in private institutions is too small to trigger a systemic problem.

"The hit to these institutions from a default is already discounted in markets. This, and other factors, should prevent disruptive contagion in the event of default. Still, this assumes that the authorities make the right choices in the event that this crisis worsens. In addition, we know we will see turmoil in financial markets next week if the Greek government does fall."

More about the Greek debt crisis on Mindful Money

Greece: Government gets austerity mandate

Opinion: Shaun Richards give the latest take on events on his Mindful Money blog.

News: Greece: Markets bet on debt default

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