Greece

The euro has been under pressure this week after media reported Greece wanted to renegotiate a joint EU-International Monetary Fund aid deal reached last month, Reuters reported. Greece denied the reports, but that has had little impact. On Tuesday, the yield spread between 10-year Greek and German government bonds at one point exceeded 4 percentage points, the widest since the euro's launch. Greece needs to sell more bonds to meet its funding needs. It has raised about 23 billion euros of a projected 2010 requirement of 53.2 billion euros.

I am willing to risk two predictions. The first is that Greece will not default this year. The second is that Greece will default. The Greek government has demonstrated that it can still borrow at a rate of about 6 per cent but if you do the maths on the public debt dynamics, as I did recently, it would be hard to arrive at any other scenario than an eventual default, the Financial Times reported in a commentary. The adjustment effort needed to prevent a debt explosion is extremely large.

The euro declined for a third day against the dollar amid speculation that a plan for Greece to obtain European Union and International Monetary Fund help in cutting its budget deficit may falter, Bloomberg reported. Europe’s common currency also slid versus the yen as Market News International reported that Greece wants to bypass IMF involvement should it require assistance because the conditions would be too stringent.

Greece has run out of cash and it is fast running out of the ability to borrow at anything but the most punitive rates. Yet borrow it must, thus putting itself in an ever more precarious position, The Wall Street Journal reported. It is the originator of its difficulties, but, far from helping, those fellow euro-landers it turned to for salvation have merely exacerbated its problems. This became painfully apparent this week as the country's attempts to refinance its maturing debt managed only a grudging response, despite an interest coupon struck at an excruciatingly high 6%.

Greek sovereign bonds suffered a sharp sell-off on Tuesday as investor concerns over the country’s financial health flared up again, the Financial Times reported. In spite of mooted support from the European Union and the International Monetary Fund, investors remain concerned that Germany could refuse to provide financial aid if the Greeks fail to meet their deficit reduction targets later in the year. Greece must raise €35 billion ($47 billion) of debt this year to avoid a bail-out. It has sold €18 billion so far.

Germany's tough conditions for any aid for Greece, which other euro-zone countries were forced to swallow at a European Union leaders' summit last week, signal a broader division that threatens to hamper Europe's ambitions as a global power: Germany has cooled to unity, except on its terms, The Wall Street Journal reported. In the past two years Germany effectively vetoed joint European action to rescue banks and stimulate growth, and rejected euro-zone calls for more teamwork on economic policy.

Greek debt managers, bankers and economists voiced relief on Friday at moves by European Union leaders and the European Central Bank to rescue the country from the threat of a sovereign default, the Financial Times reported. The EU decision on a “last resort” financial package including assistance from the International Monetary Fund would help reduce Greece’s high borrowing costs – provided its fiscal consolidation effort stayed on track, they said.

A senior Chinese central bank official criticized the handling of the Greek debt crisis, highlighting global concern about the situation in Europe, The Wall Street Journal reported. Speaking at a conference in Hong Kong, Zhu Min, deputy governor of the People's Bank of China, also said China "should and could" import more goods to keep its trade surplus small. And he noted that the central bank's efforts to tighten monetary policy were having their intended effect, even without China having to raise interest rates.

European Union leaders hold what is likely to be a tense and difficult summit on Thursday, divided over how to help heavily indebted Greece and struggling to maintain confidence in the euro, Reuters reported. Diplomatic efforts on the eve of the two-day summit failed to bridge differences over whether to offer a safety net to Greece, helping push the euro down to a 10-month low after Portugal suffered a debt down downgrade.

Britain operates one of the largest welfare states in Europe. And that, it seems, is just fine with many of the British, The New York Times reported. Despite the worst recession since World War II, many people here show little appetite for shrinking a system that eats up half the nation’s economic output, more than in Portugal, Greece or Spain — all of which are trying to push through painful cuts. Indeed, as Britain’s Labour government confronts a yawning budget deficit, public sector workers are mobilizing to head off any reductions in wages or jobs.