Investors doubt G7 talk on EU
Concerns about Greece’s public debt is growing
Lunes, 8 de Febrero de 2010
BY WILLIAM SCHOMBERG
Reuters
TORONTO – Investors are sceptical of assurances European finance ministers gave to their Group of Seven counterparts this weekend that the euro zone’s debt crisis is under control.
The 16-country currency bloc is facing its biggest ever test after concerns about Greece’s huge public debt and deficits spread to several other euro zone countries, pushing the euro to a near nine-month low against the dollar.
A sell-off of Greek, Portuguese and Spanish debt last week, which hurt global stock markets, pushed Greece’s debt woes onto the agenda of the meeting of Group of Seven rich nations’ finance ministers and central bankers in Canada’s remote north.
European ministers told their G7 peers on Saturday they would make sure Greece sticks to its budget-cutting plan.
European Central Bank President Jean-Claude Trichet issued a statement to express confidence in that plan while U.S. Treasury Secretary Timothy Geithner said the Europeans “made clear to us they will manage this with great care.”
But analysts said Europe needs to go beyond words to restore confidence among investors worried about costly financial help for Greece to prevent a default that would upset the recovery in financial markets from the 2008 credit crisis.
“What I think is needed is an agreement on behalf of the EU to provide further support for Greece,” said Michael Woolfolk, senior currency analyst at Bank of New York Mellon.
The cost of insuring the sovereign debt of Greece, Portugal and Spain against default hit record highs on Friday and investors demanded higher yields to buy bonds of other euro zone states. The idea of a Greek bailout by the International Monetary Fund was quashed at the G7 meeting by Jean-Claude Juncker, chairman of the euro zone finance ministers’ group.
Some investors saw that as a sign that Europe might be preparing financial support for Greece although European leaders would have to settle differences about setting a precedent for bailing out members of the euro zone.
Analysts at investment bank UBS said before the G7 meeting that an IMF rescue of Greece would be the best solution. Under European Union law, member states cannot assume debt of other members. The EU’s options include: faster disbursement of regular aid to Greece; issuing debt backed by the full euro zone; and the purchase by EU governments or by the European Investment Bank of Greek debt on the markets.
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