August 9, 2022

European Leaders Delay Summit Meeting Over Greece

In addition, the German chancellor, Angela Merkel, was crucial in resisting pressure for a meeting on Friday, arguing that it would be too early to deliver the comprehensive package of measures needed to restore stability to the euro zone, one official briefed on the discussion said.

Mrs. Merkel is not opposed to holding a meeting of euro zone leaders soon, said the same official.

Herman Van Rompuy, the president of the European Council, hoped to organize the meeting for next Monday or Tuesday, said the official, who was not authorized to speak publicly.

Other diplomats, who also were not authorized to speak publicly, suggested that the date might be later next week.

Meanwhile, the results of stress tests on European banks are due on Friday, promising another difficult landmark in a turbulent few weeks that have included credit downgrades for Portugal and Ireland and a tide of uncertainty engulfing the Italian bond and stock markets.

Pia Ahrenkilde Hansen, a spokeswoman for the European Commission, on Wednesday described as “incomprehensible” a decision Tuesday by the ratings agency Moody’s Investors Service to downgrade Ireland’s credit to junk status.

Another agency, Fitch Ratings, gave Italy a vote of confidence Wednesday despite the recent turmoil there, maintaining its rating on Italian debt. “In the absence of negative shocks, adherence to the fiscal targets set out by the government would be consistent with stabilizing Italy’s sovereign credit profile and rating at AA-,” it said.

Also Wednesday, the International Monetary Fund said that Greece must move quickly and decisively to bring its public debt under control.

“It is essential that the authorities implement their fiscal and privatization agenda in a timely and determined manner,” the fund said in a report, adding that “the debt dynamics show little scope for deviation.”

The backdrop to the continuing uncertainty was the failure of finance ministers from the 17 countries in the euro zone to conclude a comprehensive agreement Monday on a second bailout package for Greece, estimated to be worth 85 billion euros, or $120 billion. The ministers agreed to lighten the burden on debtor countries by reducing their interest rates and extending loan maturities, as well as helping them to buy back their bonds.

Still unresolved is the dispute over the extent to which creditors will have to sacrifice in a second bailout for Greece, and whether Europeans should include bond swaps in the rescue with the accompanying likelihood of it being declared a selective default by credit rating agencies. The European Central Bank opposes such an outcome, arguing that, by allowing the European bailout fund to finance buying back Greek bonds at market rates, private bondholders would be involved, as Germany wishes, but without a risk of default. France has said that any solution must be acceptable to the central bank.

“My bet is there will be some form of summit next week,” said a European official who was not authorized to speak publicly. “And it will go further toward the E.C.B model than to selective default — though there is everything to play for and it all depends on what Mrs. Merkel does.”

In its report on Greece, the I.M.F. highlighted the risk of default for the Greek banking sector, saying that having bondholders participate in any future bailouts “may well generate” a selective default rating for Greece, “although perhaps only for a short period of time.”

Adding to tension this week is anticipation about bank stress tests that will be released on Friday after stock markets close. The tests, which will examine banks’ ability to withstand economic and market shocks, could reinforce fears that many banks remain fragile.

In an indication that more banks may fail than did so last year, the Helaba Landesbank Hessen-Thüringen in Frankfurt conceded on Wednesday that its capital reserves would not meet the threshold to pass.

Helaba complained bitterly, however, that the European Banking Authority, which is conducting the tests, had refused to give the bank credit for state aid it had received, and said it would have passed otherwise.

According to Helaba, the banking agency said it did not have time to scrutinize whether the state aid qualified as core Tier 1 equity.

Germany’s landesbanks, typically owned by state and local governments and local savings institutions, are regarded as a weak spot in the nation’s otherwise powerful economy. They have been among the most vocal critics of the stress tests. All the landesbanks passed the tests last year, a result that contributed to skepticism that the exercise was strict enough.

Hans-Dieter Brenner, the chief executive of Helaba, said in a statement that the banking agency had “without reason pilloried a financial institution that is healthy to the core.” The agency declined to comment.

The I.M.F report released Wednesday on Greece also referred to one, unidentified, smaller bank whose capital fell “well short” of minimum requirements and was exploring the idea of a merger with its major shareholder.

Stephen Castle reported from Brussels and Jack Ewing from Frankfurt.

Article source: http://feeds.nytimes.com/click.phdo?i=5374f5b01cbedbb207fe6ca65206e65c

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