EU ministers agree to relax bailout fund, acknowledge likely Greek restructure

Scofflaw

Not actually anything to do with the EU's bailout fund (the EFSM), but instead a change in the rules governing the multilateral EFSF:

17 eurozone finance ministers have announced changes to the way the euro crisis is being handled.

Following a day of intense negotiations over how to stop the Greek debt crisis spreading into Italy, concessions were announced.

It is understood that if formally approved this could mean Ireland could avail of a lower interest rate, longer debt maturities and further savings on the debt burden.

A spokesman for the Minister for Finance Michael Noonan described tonight's statement as a positive development.

The group announced that it would carry out changes to the European Financial Stability Facility.

One third of Ireland's €67.5bn loan was arranged through the EFSF.

The changes included 'enhancing the flexibility and the scope of the EFSF, lengthening the maturities of the loans and lowering the interest rates, including through a collateral arrangement where appropriate.'

In a news conference the chairman of the eurogroup, Luxembourg Prime Minister Jean-Claude Juncker, confirmed that the changes would apply to all 'programme' countries including Ireland.

These are changes which have formally been agreed in principle.

The detail will be worked out later at a further meeting of eurozone finance ministers.

Under the changes the EFSF could be used to purchase bonds in secondary markets, provide guarantees for further loans, and extend special credit lines.

If the EFSF buys Irish bonds in secondary markets at below par value that would then realise a saving for Ireland on its debt level

Meanwhile:

Europe considers Greek default, leaders to meet

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.

Source: http://uk.reuters.com/article/2011/07/12/uk-eurozone-idUKTRE7691I320110712?feedType=RSS&feedName=topNews

So, some movement there. Naturally enough, the markets have reacted as one might expect, with a big jump in bond rates in what remains of the Irish secondary market.

cordially,
Scofflaw

ei.sdraob

Scofflaw wrote: »

Naturally enough, the markets have reacted as one might expect, with a big jump in bond rates in what remains of the Irish secondary market.

Oh stop will ya

the jump is due to Italy and Spain going south, helped by a shove from a certain Merkel

Sand

Its generally positive, but it may very well be too little, too late. They havent actually agreed any initiatives to deal with the crisis: Just that they agree to agree on what are broad, vague themes. The devil will be very much in the details and I dont think we can consider the happy friends announcement yesterday as implying any of the proposed solutions will even be pursued let alone implemented.

Lets not forget, only last year we were loudly celebrating the EU slamming down a big bag of cash (750 billion euro) to intimidate the markets into behaving themselves...didnt really work out. We've been here before.

What is very positive is that the shrill and hysterical Trichet/ECB are increasingly being sidelined.

It was only last Friday Trichet was telling anyone and everyone: ""I am not embarking on a dialogue with a particular minister here, No credit event, no selective default....We say ‘no,’ full stop.”

This announcement is very much kicking Trichet to the kerb as his insane demands are no longer limiting the policy solutions.

This problem wont be solved until the ECB is put back in its place so things are at finally, very finally on a positive track. May be too late though - we've been waiting 3-4 years for some realism here and theres no indication that any of the political groundwork has been done with the public in Germany or France for a sudden reversal of direction.

The one thing I find puzzling is the plan to buyback debt: surely this will lead to speculation where sellers can basically name their price. And whilst I can see where vulture funds might be persuaded to sell at a discount (still making a profit over the price they picked it up at) anyone whose held onto the debt since issue is still getting badly burnt.

hmmm

Sand wrote: »

And whilst I can see where vulture funds might be persuaded to sell at a discount (still making a profit over the price they picked it up at) anyone whose held onto the debt since issue is still getting badly burnt.

That's largely the point, any long term holders have already discounted their holdings and the current owners are probably largely going to be high risk speculators who nobody much cares about harming (and who themselves know they are taking a gamble).

Sand

The point though is that the vulture capitalists will make a very healthy profit on their investment, whilst the people who took up the sovereign debt issue originally will be burnt.

I'm not overly concerned, but if people think the EFSF is going to go in and pick up bargains they may get a shock.