Europe considers Greek default, leaders to meet BRUSSELS (Reuters) - European Union leaders are poised to hold an emergency summit after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts and stop contagion to Italy and Spain. "There will be an extra summit this Friday," a senior euro zone diplomat told Reuters, suggesting policymakers have been seized with a new sense of urgency after markets started targeting Italian assets. A French government source said Paris was in favor, although the timing was not yet fixed, and in Spain, European Council President Herman Van Rompuy said he had not ruled out a meeting. Earlier, Germany's finance minister had said a second Greek rescue package could wait until September after euro zone finance ministers effectively accepted that private creditor involvement meant a selective debt default was likely, despite the European Central Bank's vehement opposition to such a move. "We have managed to break the knot, a very difficult knot," Dutch Finance Minister Jan Kees de Jager told reporters. Asked about whether a selective default was now likely, he replied: "It is not excluded any more. Obviously the European Central Bank has stated in the statement that it did stick to its position, but the 17 (euro zone) ministers did not exclude it any more so we have more options, a broader scope." Participants said a buy-back of Greek debt on the secondary market and a German proposal for a bond swap for longer maturities were under consideration after a complex French plan to roll over bonds made no headway. Both would likely be regarded by ratings agencies as a default, or at best a selective default, which although it would not necessarily cover all Greek debt and could be lifted quickly, would have major repercussions for financial markets. The Institute of International Finance, the lobby group representing private creditors, said the EU and IMF needed to deliver a plan for Greece, including a debt buyback, within days to avoid markets "spinning out of control. The increased likelihood of some form of default, and a lukewarm response from the IMF, hit European bank stocks and debt markets and propelled the euro sharply lower against the dollar although markets settled later. http://ca.news.yahoo.com/eurozone-p...TGlzdGluZwR2ZXIDZjAxNjNkYjAtYWM3Ny0xMWUwLWI3Z So, they couldn't find any volunteers to assist with propping up Greece? Can you blame them? I wonder if Germany is considering dropping the Euro? _
A selective default by Greece has a wider effect. The whole idea of the Euro was that the currency was backed by the whole of its membership and things weren't going to be allowed to get to this stage. Any sort of default by a member state calls into question the inherent reliability of the Euro and a run on the Euro would have bad secondary effects on the European economy. It would also have the primary effect of making the debts of losers like Portugal, Spain and Italy harder to refinance, thus creating a self-fulfilling prophecy of potential doom.. Just like Congress is flirting with disaster over the debt ceiling over the vehement objections of the President and many of the banks, the EU seems to be flirting with disaster over the Euro over the vehement objections of the European Central Bank. A risky situation all round.
European debt makin' the markets nervous... Europe default risk signal flashing red September 16, 2011: The risk of sovereign default in Europe is increasing.
