Euro Officials Begin to Weigh Greek Exit as Euro Weakens
Greece’s possible exit from the euro moved to the center of Europe’s financial-crisis debate, rattling markets as authorities in Athens struggled to form a government.

Meetings brokered by Greek President Karolos Papoulias were set to continue today after Syriza, the leading anti-bailout party, rejected a unity government following inconclusive elections May 6. That moved the country closer to a new vote, with at least five European central bankers broaching the once- taboo topic of its exit from the euro.

The euro dipped below $1.30 last week for the first time since January. Photographer: Simon Dawson/Bloomberg
.“We’re really getting to a denouement,” Michael O’Sullivan, head of portfolio strategy at Credit Suisse Private Banking, said today in a Bloomberg Television interview. “We’re getting to the part where a decision has to be made” on whether Greece leaves the 17-nation currency union, he said.

Euro finance ministers meeting today in Brussels may discuss the bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up banks. Getting German Chancellor Angela Merkel to weaken her demand that debt cutting be the core of the crisis response will be a key objective of new French President Francois Hollande when the two meet tomorrow in Berlin.

The euro fell for the 10th day in 11, weakening 0.4 percent to $1.2872 at noon in Brussels, the lowest in three months. Bonds in Italy and Spain tumbled, with Spanish 10-year yields climbing to more than 6.2 percent today for the first time since Dec. 1. Each country’s spread against German 10-year notes jumped by more than 30 basis points.

The Euro Stoxx 50 Index declined as much as 2.4 percent to its lowest in almost five months after European Central Bank policy maker Christian Noyer today joined ECB officials Jens Weidmann, Patrick Honohan, Ewald Nowotny and Joerg Asmussen in discussing a potential Greek exit from the euro.

“Whatever happens in Greece won’t be a problem for the French financial sector,” Noyer told journalists today in Paris. “I don’t know a single group that will be placed in difficulty by an extreme scenario for Greece.”

German Finance Minister Wolfgang Schaeuble reiterated in Sueddeutsche Zeitung that member states seeking to hold the line on austerity in Greece could not force the country to stay.

The euro finance ministers, known collectively as the eurogroup, will convene in Brussels at 5 p.m. local time.

The European Commission isn’t considering easing the terms of the joint bailout for Greece from the EU and the International Monetary Fund, EU spokesman Amadeu Altafaj said, denying a report by Athens-based Real News.

No Movement
“I’m not aware of any discussions within the commission to grant new provisions, new concessions in the program” for Greece, Altafaj said by phone yesterday.

A Greek departure from the euro could trigger a default-inducing surge in bond yields, capital flight that might spread to other indebted states and a resultant series of bank runs. Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.

Europe’s central bankers are discussing the possibility of a Greek departure and how to handle the fallout, Swedish Riksbank Deputy Governor Per Jansson said in an interview on May 11.

European Union Economic and Monetary Commissioner Olli Rehn said in Tallinn that the region is “certainly more resilient” to a possible Greek exit than it was two years ago, when the bloc would have been “massively underprepared.”

‘Akropolis Adieu’
“I still believe that Greece can stay in the euro and find the way to make sure that it respects its commitments,” Rehn said. “It would be much worse for Greece and Greek citizens, especially for the less well-off Greek citizens, if Greece did leave the euro than for Europe as such. Europe also would suffer, but Greece would suffer more.”

Under a story headlined “Akropolis Adieu, Why Greece Must Leave the Euro”, Germany’s Der Spiegel magazine today reported that the EU may provide funding for Greece even after a euro exit, citing plans formulated by Schaeuble’s ministry.

After elections in Greece and France signaled a backlash against the German-led agenda of scaling back spending to battle the debt crisis, officials across the region have re-tuned their rhetoric to emphasize growth and employment.

“Syriza won’t betray the Greek people,” party leader Alexis Tsipras said in a statement yesterday as Papoulias began a final bid to coax parties into a coalition. The failure to form a government has prompted concern that Greece may backtrack on pledges to cut spending as part of the bailout requirements negotiated since May 2010, so foreshadowing a euro withdrawal.

Merkel Setback
The latest defeat was suffered by Merkel yesterday in Germany’s largest state, North Rhine-Westphalia, where her Christian Democratic Union suffered its worst defeat there since World War II. The German Social Democrats, the main opposition party nationally, tightened their grip among German regional governments.

Hollande, who defeated single-term President Nicolas Sarkozy on May 6 to become the first Socialist president of the Fifth Republic in almost two decades, will take office tomorrow and begin his campaign to shift the focus of crisis-fighting away from austerity. Merkel said last week that she’ll welcome Hollande for talks “with open arms.”

“I expect both of them to give a clear signal of commitment to stability of the euro zone of overcoming the sovereign debt crisis,” Peter Altmaier, the deputy floor leader of Merkel’s party, said yesterday on Sky News.

‘Growth Pact’
With Hollande among leaders calling for a “growth pact” alongside the German-championed fiscal treaty, euro leaders will look toward a summit dinner in Brussels on May 23.

Investors will also be watching tomorrow when the Greek government is scheduled to repay 436 million euros ($563 million) on a floating-rate note held by investors who shunned its bond-loss accord. An EU official said May 10 that the payment decision is up to the government in Athens.

The government in Athens would run out of cash by early July if creditors decided to withhold their next aid payment in reaction to stalling progress in Greece, according to a report last week by Bank of America Merrill Lynch.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Lone Cat wrote:Greece has a big taxation problems. French media coverage (TV5) always say that Greeks do have caste systems.
1. Peasants. ordinary citizens, always taxed. and being taxed heavily
2. Patricians. High class citizens with a high earnings, usually a businessman. always exempted from tax system.
Does greek law provides any priviledges to the Patricians?
a tax policy that... if one say it is designed to 'force' citizen productivity . needs a big reform

Lone Cat wrote:If Greeks doesn't have caste system. Why in the name of Olympians do the government give priviledges to those rich men? whom will be heavily taxed elsewhere in Europe.

Joey wrote:The economy of greece is smaller than the economy of a single German state. It's irrelevent what they do, really.
Much more important what happens in Spain/Italy.

Frazzled wrote:

Joey wrote:The economy of greece is smaller than the economy of a single German state. It's irrelevent what they do, really.
Much more important what happens in Spain/Italy.

You think its irrelevant until theypotentially break the Euro when they leave.

Joey wrote:

Frazzled wrote:

Joey wrote:The economy of greece is smaller than the economy of a single German state. It's irrelevent what they do, really.
Much more important what happens in Spain/Italy.

You think its irrelevant until theypotentially break the Euro when they leave.

Why would they break the Euro? The strength of the Euro is in the high-tech economies of Germany.

Frazzled wrote:

Joey wrote:

Frazzled wrote:

Joey wrote:The economy of greece is smaller than the economy of a single German state. It's irrelevent what they do, really.
Much more important what happens in Spain/Italy.

You think its irrelevant until theypotentially break the Euro when they leave.

Why would they break the Euro? The strength of the Euro is in the high-tech economies of Germany.

Corrected your typo.

1. European banks are full of Greek sovereign notes. Even more so for Italian, and Spanish notes. In addition to being pretty much owned by your various governments now, European banks have termed a new phrase: Zombie Banks. They are animated but not alive.

2. When the notes fail these banks will again go under or suffer severe losses, such that it shuts down the financial secondary markets between banks. Aka it becomes amarket wide liquidity event - no one can loan funds or give out cash because they don't have it. Its never too late to revisit 2008!

3. Now if the Euro countries were healthy Greece could be disentangled much easier. But Its not. In addition to Greece, Spain, Italy, and the UK have fallen back into recession.

Life is going to get interesting in a few weeks.

Frazzled wrote:

Joey wrote:
Why would they break the Euro? The strength of the Euro is in the high-tech economies of Germany.

Corrected your typo.

Frazzled wrote:European banks generally are still far below Basell II standards (what you're referring to).

Frazzled wrote:
Further, where do you think they are getting the capital?

Hazardous Harry wrote:

Frazzled wrote:

Joey wrote:
Why would they break the Euro? The strength of the Euro is in the high-tech economies of Germany.

Corrected your typo.

You might have a point with Italy. But France, Belgium and Denmark? What are you basing that on?

PhantomViper wrote:

Frazzled wrote:European banks generally are still far below Basell II standards (what you're referring to).

Well, that isn't the news that are being passed around this side of the pond... What we are hearing is that most banks have passed the Basell II standard stress tests earlier this year if I'm not mistaken...

Frazzled wrote:

Further, where do you think they are getting the capital?

Through social capital increases and by not lending any money whatsoever to anyone (no idea really)?

Frazzled wrote:
I work in the industry at a corporate level against them. Your news is wrong.

Frazzled wrote:

er...what?

purplefood wrote:Can't we just invade them?

Frazzled wrote:

purplefood wrote:Can't we just invade them?

yes, yes we can. Oh wait, who are we invading today?

Frazzled wrote:

Joey wrote:

Frazzled wrote:

Joey wrote:The economy of greece is smaller than the economy of a single German state. It's irrelevent what they do, really.
Much more important what happens in Spain/Italy.

You think its irrelevant until theypotentially break the Euro when they leave.

Why would they break the Euro? The strength of the Euro is in the high-tech economies of Germany.

Corrected your typo.

1. European banks are full of Greek sovereign notes. Even more so for Italian, and Spanish notes. In addition to being pretty much owned by your various governments now, European banks have termed a new phrase: Zombie Banks. They are animated but not alive.

2. When the notes fail these banks will again go under or suffer severe losses, such that it shuts down the financial secondary markets between banks. Aka it becomes amarket wide liquidity event - no one can loan funds or give out cash because they don't have it. Its never too late to revisit 2008!

3. Now if the Euro countries were healthy Greece could be disentangled much easier. But Its not. In addition to Greece, Spain, Italy, and the UK have fallen back into recession.

Life is going to get interesting in a few weeks.

The worst that could happen is a government debt default by Italy/Spain, but that's less likely than it was, especially in Italy.

Lone Cat wrote:^ What will happen to Asia should this happen?

meow.