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Friday, April 09, 2010 11:58 AM


EU Says It's Ready To Rescue Greece If Needed; UBS Says IMF Participation is “Unavoidable”


Yesterday Greece Finance Minister George Papaconstantinou said there is no need for extra measures to shore up Greece's finances. The bond market thought otherwise as Greek Bonds Drop a 7th Day; Bund Spread Widens on Budget Woes

Greek two-year notes slid for a seventh day and the 10-year yield premium to German bunds widened to the most since the euro’s debut after the nation’s finance minister failed to dispel concern that the government is doing enough to avoid a default.

The decline drove the yield on the two-year note up as much as 210 basis points, bringing increases since the streak began to 447 basis points. The 10-year Greek yield rose 54 basis points, bringing its premium to 442 basis points above bunds, the benchmark for borrowing in Europe, based on Bloomberg generic prices. Greek stocks fell and credit-default swaps on the nation’s debt rose to a record.

Finance Minister George Papaconstantinou said there will be no need for additional measures after the European Union and International Monetary Fund put together a rescue plan last month. Papaconstantinou said it will take some time for spreads to narrow and there will be no need for extra measures to shore up the nation’s finances as long as Greece’s stability pact is implemented “correctly,” according to an e-mailed transcript of his interview with ANT1 television.
Trichet Says EU Shouldn’t Subsidize Any Greek Loans

Please consider Trichet Says EU Shouldn’t Subsidize Any Greek Loans
April 8 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said governments shouldn’t subsidize any loans to Greece as part of a financial package to the country.

“We are very attached to the idea that there shouldn’t be a subsidy element,” Trichet told Bloomberg Television in an interview in Frankfurt today. “Any government which would lend to Greece would have to make sure that it is not lending to Greece at a loss.”

Under the accord brokered by German Chancellor Angela Merkel and French President Nicolas Sarkozy, each euro-region country would provide non-subsidized loans to Greece based on its stake in the ECB. Europe would provide more than half of the loans and the IMF the rest.

Greek Prime Minister George Papandreou’s government needs to sell 11.6 billion euros ($15.4 billion) of debt by the end of next month. The premium demanded by investors to hold Greek 10- year bonds over German counterparts rose today to the highest since the euro’s debut in 1999.
EU Says It’s Ready to Aid Greece as Fitch Cuts Credit Rating

With Greece, the situation changes daily. Things said one day are regularly taken back or denied the next. The story for today is EU Says It’s Ready to Aid Greece as Fitch Cuts Credit Rating
European Union officials said they are ready to rescue Greece if needed as Fitch Ratings cut the country’s credit rating to the lowest investment grade and economists at UBS AG said that a bailout may be imminent.

“A support plan has been agreed and we are ready to activate at any moment to come to the aid of Greece,” French President Nicolas Sarkozy told reporters in Paris. The EU is “ready to intervene,” Herman Van Rompuy, the president of the 27-member bloc, was cited as saying by Le Monde today.

“We are likely getting close to the point” where Greece asks the EU and the International Monetary Fund for aid, said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “Presumably, all the decisions will need to be taken quickly, between the close of business on a Friday and the opening of business on a Monday.”

Any aid request would risk re-opening EU political divisions, particularly if it were to come before a May 9 regional election in Germany, where opinion polls show public opposition to supporting Greece. Euro-region leaders last month endorsed a compromise proposal reflecting French-led demands for a lead role for the euro area and German insistence that the IMF be involved.

German Chancellor Angela Merkel has insisted that no concession be made to Greece and that loans be extended at close to its cost of borrowing in the market. European Central Bank President Jean-Claude Trichet said yesterday that EU countries would extend loans to Greece at their own cost of borrowing, which would leave Greece paying less than if it went directly to the market.

UBS economists wrote that the lack of detail and the speed at which the situation is deteriorating mean IMF participation is “unavoidable.”
Once again the EU pulls out its water pistol and makes a hollow statement that "they are ready to rescue Greece if needed". It seems the bond market determined long ago that something was needed. Arguably, that something is a default.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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