Mario Draghi struggles with 'default' in EU Parliament hearing

Mario Draghi, President of the Bank of Italy, on Tuesday was recommended to succeed Jean-Claude Trichet as ECB President in an Economic and Monetary Affairs Committee vote on Wednesday. The committee opinion - 33 in favour, 2 against and 4 abstentions - now needs to be confirmed by a vote of Parliament as a whole, scheduled for 23 June.
Ministers did concede that some progress was made despite the lack of agreement. "We are very close to an agreement with all private partners. But there must be a balance: a real effort on Greece's part - help from the IMF, the euro zone and the European Union; and participation of the private sector," said Belgian Finance Minister Didier Reynders. The vote followed a hearing held on Tuesday.

Finnish Finance Minister Jyrki Katainen said that most countries indicated that some sort of private sector involvement was crucial.

"I want to underline that we have to avoid, whatever it takes, the next financial crisis. The balance is very difficult," declared Katainen.

Ahead of a summit of EU leaders on 23-24 June at which a new aid package for Greece is expected to be finalised, Germany is pushing for Greek bond maturities to be extended for seven years, giving it more time to right its economy and sell off state assets.

Rating agencies have warned they would see such a step as coercive and akin to a default.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet on 17 June in Berlin, with pressure mounting for the leaders to resolve their differences over a rescue for Greece, which was downgraded this week to the world's lowest credit rating by Standard & Poor's.

The European Central Bank also opposes Berlin's plan and is pressing the bloc to opt for a softer solution that would seek contributions from the banks, pension funds and insurance firms that hold Greek debt on a "purely voluntary" basis.

"Somebody has to concede ground over the coming days or the region will experience a full-blown financial crisis," said David Mackie, an economist at J.P. Morgan.

Debt yield spike

Greek, Portuguese and Irish 10-year bond yields all pushed up to euro lifetime highs yesterday and the cost of insuring Greek debt against default reached a new peak amid worries about the deadlock on Greek aid.

China's central bank used its annual financial stability report to sound one of its starkest warnings yet about Europe's debt mire, saying a series of rescue measures had helped stabilise the situation but not tackled the root causes.

"The sovereign debt crisis could continue to weigh on Europe's economic recovery," it said. "There is a possibility that the sovereign debt crisis will spread and deteriorate."

The European Union and International Monetary Fund bailed out Athens to the tune of 110 billion euros just over a year ago, and followed up with similar packages for Ireland and Portugal.

A new Greek rescue is now being thrashed out as it continues to sink under a debt pile that totals roughly 150 percent of its annual output.

The new deal being discussed would keep Greece funded through 2014 and total 120 billion euros, including 60 billion euros in new EU/IMF aid and an equal amount from a combination of privatisation receipts and private sector contributions.

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[pierrelarouge]

Look at the hook nose and the dishonest eyes, you can try and pretend you are american or italian or whatever but theres a growing minority out here that can spot you criminals a mile away and know your agenda.

[pierrelarouge]

Another Jew at the top of the criminal zionist mafia.

[1969liberty]

the Euro is printed out of nothing ( not backed up with gold ) but it is lent

to the eu countries with interests.

The EZB already stared now buying countries who can't pay back the high

interests from the huge debts. All

money in circulation in the EU

is debt! This will driver all EU countries in the

slavery. The worth to the currency is given by the people not by the print shop therefore there is no reason that the EZB dies lent

us the money which should be given

to the countries without inter

[porcelinux]

kill the bankers

[zionisimkills]

Anyone or any country that deals with "Goldman Sachs" loses, Period, Goldman only does  deals where " Goldman Sachs wins, everybody else loses.

[nathanwilefrazier]

To the extent that conservatives are in control of the Greek political system, they will threaten to go off of the Euro. Germany will counter by offering to extend the duration of repayment on loans. Greek liberals will eventually force tax brackets to be compressed in Greece. German banks will make out like bandits. The (most probable) end.

[nathanwilefrazier]

So the world is still grappling with Ayn Rand's criticism of democracy: that a poor majority should not be allowed to expropriate from a wealthy minority via the ballot box... (To which Krugman would counter that German banks must bear the costs of their risk taking - i.e. "read the fine print" on the loans...)

[nathanwilefrazier]

Conversely, an extreme conservative outcome would be if e.g. the "upper classes" from Greece moved to Germany, became citizens, voted the German welfare system away, persuaded Greece to stay on The Euro, lent to the Greek lower classes beyond what they could repay, and ultimately forced them into debt (that could not be devalued...) servitude with no upper classes left to tax (!)

[nathanwilefrazier]

So over longer time scales, whether Greece & Spain create "the Euro II" or they compress tax brackets and stay on The Euro is ultimately a matter of political taste.

What will create a lot of tension is an (indirect) flow of real wealth from German upper classes to Greek lower classes via lower interest rates, debt forgiveness, or Euro devaluation.

[nathanwilefrazier]

In this case the pain of the restructuring would likely create a political backlash by the lower classes in Greece and force a compression of tax brackets and increase in welfare. Then such monetary austerity would become as politically viable in Greece as it is in Germany - because the tax-welfare structure of both countries would have also "converged" at that point.