Eurozone finance ministers will return to Brussels on Monday (11 July) to confront fears that the sovereign-debt crisis is intensifying.
A credit-rating downgrade for Portugal and a warning that the country could follow Greece in needing a second bail-out have provoked new worries that contagion has not been contained.
Yields on ten-year Portuguese bonds rose to record levels yesterday (6 July) and spreads between both Spanish and Italian bonds in relation to German bonds widened, signalling investors’ apprehensions at the prospects of a deeper crisis.
The 17 finance ministers of the eurozone, who on Saturday (2 July) gave their approval to the release of the latest €12 billion international loan to Greece as part of its May 2010 bail-out, will spend Monday’s meeting working out how to involve private creditors in a second rescue package.
European Commission officials took the unusual step of commenting on the downgrade of Portugal’s sovereign debt to ‘junk’ status by Moody’s, a credit-rating agency – which came with a warning that the country could need more international loans before being able to return to the capital markets.
José Manuel Barroso, the Commission’s president, who is a former prime minister of Portugal, said yesterday that he “deeply regretted” the decision “both in terms of its timing and its magnitude”.
The Commission is already planning legislation to mitigate the impact of credit ratings’ views of European sovereign debt. Because there is no European rating agency, “there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe”, Barroso added.
Wolfgang Schäuble, Germany’s finance minister, echoed the criticism, urging limits on the agencies’ influence.
Commission officials suggested that a more realistic analysis of Portugal’s economy will not be available until a team from the Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) have completed their first review of the situation in August.
Jean-Paul Gauzès, a French centre-right MEP, said he regretted that “we still don’t have European supervision to regulate and prevent the publication of reports that are not based on serious findings”.
Banks from across the EU held a meeting in Paris yesterday under the aegis of the Institute of International Finance. The main proposal they examined was a plan from France’s banks to roll over 70% of their Greek loans into 30-year bonds. Germany has also suggested that banks holding Greek bonds might exchange them for new ones with longer maturities. But any plan needs to avoid being seen as a default – something that Standard and Poor’s, another credit-rating agency, warned on Monday (4 July) was likely under current proposals.
Sony Kapoor, the managing-director of Re-Define, a Brussels-based think-tank, said: “The longer the euro crisis stays in the headlines, the more likely it is that Spain and even Italy get sucked in. That is why a decisive and quick solution to Greece is so critical.”
Meanwhile, tensions remain high in Ireland, where representatives of the EU, IMF and the ECB arrived yesterday for their second quarterly review of the country’s books since its bail-out. Michael Noonan, Ireland’s finance minister, is still trying to obtain better terms on its loans. On Tuesday (5 July), he told the country’s parliament that profits made by the EU and IMF on their loans to Ireland could be worth up to €9 billion by 2015, a figure he described as “excessive”.
Further anxieties have been raised by Moody’s comments on the ability of Europe’s banks to cope with financial shocks. The agency said yesterday that it expected the results of the stress tests – likely to emerge next week from the European Banking Authority – to show that almost a third of the 91 banks tested would need external support.
Click Here: New Zealand rugby store