March 7, 2021

Sovereign Debt Worries Flare Again in Europe

European stocks were sagging even before a disappointing U.S. jobs report added to concerns about the global economy, dragged lower by those companies most tied to growth like car makers, banks and insurers.

Yields on 10-year Italian bonds rose almost a tenth of a percentage point to 5.21 percent — well above the 5 percent level that is considered to be the top rate desired by policy makers.

The yield on Spain’s 10-year securities climbed slightly to 5.06 percent, despite passage in the lower house of the Spanish Parliament on Friday of an amendment that will enshrine stricter budgetary discipline in the Constitution.

The E.C.B. on Aug. 8 began the extraordinary step of buying Italian and Spanish debt to help calm markets after 10-year rates had spiked to around the 6 percent level.

David Schnautz, interest rate strategist at Commerzbank in London, said many investors had chosen to use the E.C.B.’s recent bond buying program to offload those bonds, and that was causing yields to drift up now.

“There’s still no genuine investor demand for Spanish and Italian government bonds,” he said.

Sentiment was hit after the team of European and International Monetary Fund officials pulled out of Athens early as they apparently disagreed over the country’s deficit figures and how to make up for a growing budget shortfall.

The mission had been sent to determine whether Greece would meet the conditions for the next tranche of emergency loans, due in September.

The representatives of the European Commission, the European Central Bank and the I.M.F. said in a statement that “good progress” had been made, but that they wanted to allow time for the Greek government to complete technical work on the 2012 budget and reforms.

The delegates, who had been scheduled to leave next week, said they would return to Athens by mid-September, “when we expect the Greek authorities to have completed the technical work, to continue discussions on policies needed to complete the review.”

An initial loan package, agreed to last year, has since been supplemented by a second bailout deal that was hammered out in Brussels in July, but which now hangs in the balance amid demands by some euro zone countries for guarantees from Greece in the form of collateral. Without that fresh aid, Athens could default on its obligations.

The Greek Finance Minister Evangelos Venizelos denied that there was a rift with the auditors over the country’s ability to meet deficit reduction targets set by the foreign creditors.

The minister said at a news conference that talks were continuing with auditors in “a very friendly and constructive climate,” and that he expected the team back on Sept. 14 for a second phase once Athens had finalized a draft of the national budget for 2012.

Greek officials had not previously suggested that there would be a break in negotiations with the inspectors, whose previous audits have lasted two weeks.

One issue that dominated talks, which concluded in the early hours of Friday morning, was a deeper-than-expected recession in Greece that would necessitate “some additional elaboration to ensure there is no divergence” from deficit reduction targets, Mr. Venizelos said.

A European official, speaking on condition of anonymity because the talks were confidential, said that without additional information, there was a risk that some euro zone countries might not agree to releasing the next tranche.

Mr. Venizelos also said that Greece’s economy was expected to contract by “up to 5 percent” but would not give a figure for the Greek budget deficit, broadly expected to overshoot a deficit target of 7.6 percent for 2011 by up to one percentage point.

Article source: http://www.nytimes.com/2011/09/03/business/global/sovereign-debt-worries-flare-again-in-europe.html?partner=rss&emc=rss

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