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March 23, 2023

Greek eurozone exit would have ‘dramatic’ consequences, Olli Rehn says

German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou were due to meet last night.

A Greek default or exit from the eurozone would have “dramatic” consequences for Greece as well as for Europe and the rest of the world, EU Economic Affairs Commissioner Olli Rehn told the European Parliament on Wednesday, meeting in Strasbourg, economictimes.indiatimes.com reports. Rehn’s warning follows growing expectations in Europe, despite official denials, that Greece is heading towards a bankruptcy that would force it to default on part of its massive debt mountain.

The main fear of a Greek bankruptcy would also have a knock-on effect on banks, many of which are which are large holders of Greek government bonds, according to cbsnews.com. Olli Rehn also warned against a Greek default or speculation that the debt-ridden country should abandon the euro and return to its old currency, the drachma and financial market turbulence is threatening economic and job growth in the euro area. However, Rehn said he expects the meeting of euro-zone finance ministers this weekend in Wroclaw, Poland to “overcome remaining hurdles and get the job done.” The finance ministers from the wider 17-nation eurozone will meet on Friday in Poland.

Under the circumstances, German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou were to discuss the situation Wednesday evening, after a government meeting Papandreou called to address urgent fiscal reforms.

German Economy Minister Philipp Roesler, who is also vice chancellor, caused a stir this week by writing in an opinion column in German daily Die Welt that Europe could no longer rule out an “orderly default” for Greece. German Chancellor Angela Merkel subsequently told a radio programme that the top priority for policymakers was to avoid an “uncontrolled insolvency” for Greece.

Rehn urged eurozone states swiftly to approve a second bailout for Greece which was agreed on July 21 but has been held up by concerns raised by Finland, Slovakia and the Netherlands. “I cannot stress enough the importance of the swift implementation of the decisions taken,” he said.

“Europe is in danger,” Rostowski, whose country holds the rotating EU presidency, told the European Parliament in Strasbourg ahead of emergency talks between leaders from Germany, France and debt-hit Greece. “If the eurozone breaks up, the European Union will not be able to survive, with all the consequences that one can imagine,” he said of the currency bloc that comprises 17 of the 27 EU countries. European Commission head Jose Manuel Barroso described the crisis as “the most serious challenge of a generation.

China states price for Italian rescue

China has called for major strategic concessions from Europe before agreeing to rescue the eurozone, chilling hopes for immediate purchases of Italian bonds, telegraph.co.uk informs. Premier Wen Jiabao said his country and will play its part to “prevent the further spread of the sovereign debt crisis,” but warned that China will not sign a blank cheque for states that have failed to carry out full reform. Mr Wen said he had spoken to José Manuel Barroso, the president of the European Commission, laying the conditions for Chinese intervention. “I made clear to him that we are confident Europe will overcome its difficulties and make a full recovery. We have on many occasions expressed our readiness to extend a helping hand, and that we are willing to invest more in European countries.” “At the same time, we need bold steps to give redirection to China’s strategic objective. We believe they should recognise China’s full market economy status,” he said, referring to World Trade Organisation rules.

Italy’s finance minister Giulio Tremonti said it is hard to persuade Asian investors to buy Italian debt when the European Central Bank hesitates to do so. China’s sovereign wealth fund – China Investment Corporation – has been in talks with Italy but is more interested in buying key industrial and strategic assets.

European stocks rebound

European stocks rose Wednesday, underpinned by the prospect of a common Eurobond and a French pledge of support for Greece, as investors mulled the possibility that China may purchase peripheral European debt, WSJ reports. European Commission President Jose Manuel Barroso said the commission will soon present options for the introduction of a common bond for the euro area, while France said it would do all it takes to save Greece from default.
These comments helped to push the region’s main indexes higher, and the Stoxx Europe 600 was recently 0.9% higher at 222.86. London’s FTSE 100 index rose 1% to 5224.91, Frankfurt’s DAX had added 1.4% to 5236.22, and the CAC-40 Index in Paris had gained 1.2% to 2930.36.

Earlier, a report quoting an official from China’s economic planning agency stating that the superpower is willing to buy bonds of the crisis-hit nations set the positive tone.

However, market participants were sceptical about the likelihood of such a move, particularly after Chinese Premier Wen Jiabao declined earlier Wednesday to give any indication as to what specific support or investments China is prepared to undertake. In terms of sectors, banks managed to reverse early-session losses, with the Stoxx Europe 600 index for the sector 0.6% higher at 125.91. French banks fared a little worse than their peers after Moody’s Investors Service downgraded the long-term debt rating of Société Générale and Crédit Agricole, citing funding and liquidity problems for Société Générale and Greek exposure for Crédit Agricole.

Moody’s downgraded Société Générale to Aa3 from Aa2 and Crédit Agricole to Aa2 from Aa1. Moody’s kept its long-term rating for fellow French bank BNP Paribas at Aa2, though it kept the rating under review. Shares in Société Générale traded 3.2% lower and BNP Paribas fell 2.1%, but Crédit Agricole reversed course, to trade up 2.9%. On the other hand, Societe Generale, risks becoming the target of a takeover by a foreign bank, a French lawmaker said, according to Bloomberg, Mediafax reports.

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