Markets in jittery mood as Greek bailout uncertainty escalates, rates rise in Spain, Italy
Thursday, 16 February 2012 | 12:36
Markets were in a jittery mood Thursday as uncertainty escalated over whether Greece will get vital bailout cash to avoid defaulting next month.
Stocks took a hit, the euro dropped below $1.30 and the borrowing rates rose for Italy and Spain, an indication of renewed investor concerns that they will eventually be dragged back into the crisis that had shown some signs of easing over the past few weeks.
The prevailing view for much of this year has been that Greece would get its second bailout in less than two years and that’s helped shore up markets following the febrile atmosphere of 2011. For months, Greece has been discussing the details of a planned bailout worth €130 billion ($170 billion) and an accompanying €100 billion ($131 billion) debt writedown by private bondholders.
Jean-Claude Juncker, who heads eurozone finance meetings, promised more clarity on Monday, when he said decisions will be made on Greece. His comments came as relations between Greece and its partners in the eurozone — especially Germany — hit a new low with strong comments on both sides.
However, over the past few days worries have grown that a deal may not emerge, that Greece could default within a month, and that the country’s eurozone partners may be contemplating what had previously been thought very unlikely — pulling the plug on Greece and allowing it to default.
“Whilst there have been suggestions that Europe is much better prepared to face such an eventuality it is still difficult to believe that would be many politicians first choice because you just do not know what the reaction would be across the capital markets,” said Gary Jenkins, managing director of Swordfish Research. “Heck of a chance to take considering the fragility of confidence and the economy.”
That appears to be the main concern in markets on a day with little on the economic calendar. News that Moody’s could follow up its European sovereign ratings cuts earlier this week by downgrading dozens of European banks, utilities and other companies with close ties to government finances added to the prevailing gloom.
In Europe, the FTSE 100 index of leading British shares was down 0.8 percent at 5,845 while Germany’s DAX fell 1.2 percent to 6,674. The CAC-40 in France was 0.7 percent lower at 3,364.
The euro was also 0.3 percent lower at $1.3007, having dipped below that level earlier.
The yield on Italy’s ten-year bond rose 0.20 percentage points to 5.84 percent while Spain’s rate rose another 0.16 percentage points to 5.55 percent. Though both are still down from the 7 percent mark that is considered unsustainable in the long run, the increases are the biggest daily movements in weeks.
Wall Street was also poised for a lower opening — Dow futures were down by 0.3 percent at 12,728 while the broader Standard & Poor’s 500 futures fell 0.4 percent to 1,336.
The focus will likely remain on Greece prior to Monday’s meeting of eurozone finance ministers.
Greece was asked last week to meet three demands so it could get the bailout cash which it needs to avoid defaulting on its debts on March 20, when a big bond redemption is due. Other countries who share the euro currency insisted that the Greek Parliament agree on another batch of austerity measures, spell out a further €325 million ($425 million) in Greek savings measures and give written assurances by the leaders of Greece’s coalition government that they will stick to those requirements even after an election scheduled for spring.
Even though all three conditions appear to have cleared, the eurozone is balking at finalizing the bailout, with some suggesting the money should not be handed over until after the election.
On Wednesday evening, after a three-and-a-half-hour conference call between the 17 eurozone finance ministers, more hurdles were put in front of Greece.
Though Juncker said Greece had made “substantial further progress,” he added that “further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of program implementation and to ensure that priority is given to debt servicing.”
His statement suggests that Greece’s eurozone creditors may be insisting on a recent proposal by France and Germany to set up an account, separate from Greece’s general budget, that would be dedicated to paying off Greece’s massive debt. It was unclear whether this account would only manage the bailout money or whether government revenue could also be funneled into it.
Earlier in Asia, Tokyo’s benchmark Nikkei 225 index shed 0.2 percent to 9,238.10 and Hong Kong’s Hang Seng was off 0.4 percent at 21,277.2. Seoul’s Kospi fell 1.4 percent to 1,997.45. China’s Shanghai Composite Index lost 0.4 percent to 2,356.86.
In the oil markets, prices fell alongside equities despite ongoing concerns about developments in the Persian Gulf and conflicting reports about whether Iran is cutting crude exports to Europe — the benchmark New York rate was down 56 cents at a barrel at $101.26.
Source: Associated Press