Euro Close to 11 Month Low vs. Dollar

The troubled euro fell close to an 11 month low vs. the US dollar last week as rising spreads on Greece’s debt prompted speculation that the Athens government may default. Although Greece has not requested aid from the EU Euro zone finance ministers will hold talks Sunday to work out the details of how a safety net for Greece will work. The European Central Bank and the European Commission will also take part in the talks. A spokesman for Eurogroup chairman Jean-Claude Juncker stated, “There will be a teleconference on Sunday on Greece in the usual Eurogroup composition,. Greece has not asked for help, but you have to be ready if they do”. Throughout the week markets hammered Greek bonds and bank stocks and drove up borrowing costs for the already indebted nation pushing the Athens government to requesting aid.

Papandreou Says Greece May be Forced to Use Aid Mechanism

In a newspaper interview Greek Prime Minister George Papandreou told reporters that Greece may be forced to use the rescue mechanism if markets remain skeptical. Papandreou said, “The question remains whether this mechanism will convince markets just as a gun on the table. If it does not convince them, it is a mechanism that is there to be used.” Greece’s Finance Minister George Papaconstantinou told another newspaper that Greece needs clarification on the conditions of the EU/IMF agreement. Papaconstantinou told reporters, “The aid mechanism is a very important safety net. We have repeatedly said that it was crucial to create and detail it, but we hope and believe that Greece will not use it.” Sunday’s EU teleconference will take place at 1200 GMT and will discuss details of the aid mechanism.

Greek Bonds and Bank Stocks Hammered

EU nations have promised to aid Greece if it cannot finance its debt through financial markets and Greece needs to finance 300 billion Euros ($401.2 billion USD)of debt. Markets have not responded and remain skeptical due to a lack of clarity in the EU IMF agreement. 300 billion euro ($401.2 billion) told the Realnews newspaper, “Until now all (bond) issues have been oversubscribed, that shows that despite the turbulence in bond markets there is interest and trust from investors. Our target remains to have better rates and borrowing terms.” EU leaders decided this week that any aid to Greece would be made on similar terms to IMF bailouts. Adding to Greece’s woes was Fitch’s downgrade to BBB-minus, just above ‘junk’ rating and said further downgrades are possible. The effect of Sunday’s teleconference will not be felt until Monday when markets open.

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