Greece: Set to default on its debt?

12th July 2011

The Guardian reports how EU finance leaders now expect Greece to become the first among the 17 countries using the euro to miss a deadline for paying back its debt.

The views were issued by the leaders, the Eurogroup, in a statement which has been published in full on The Telegraph.

It says: "To this end, ministers stand ready to adopt further measures that will improve the euro area's systemic capacity to resist contagion risk, including 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."

EU leaders have also raised the possibility of using the eurozone's bailout fund to buy back Greek debt on the markets; with the possibility of sizeable losses for Greece's private investors and reduced debt levels for Athens.

The Guardian reports that the statement followed 12 hours of fraught negotiations in Brussels which took place amid fears of the eurozone crisis spreading to Italy.

Yet only last week eurozone ministers were adamant of the need for Greece to avoid default.

Dealers reported a race to "safe havens" and gold priced in euros and sterling reached record levels of €1,110.48 and £979.89 an ounce in early trading before falling back, while the euro hit a record low against the Swiss franc.

The Financial Times (paywall) reports that the change in strategy, if adopted by the euro's 17 member states, "would represent a break from past efforts to delay the day of reckoning and signals a change in what the European Union views as the biggest threat to the bloc's financial stability".

The real fear now appears to be contagion, which infects bond markets and increases borrowing costs for all peripheral eurozone countries.

But whether the latest plans will help ease this fear remains to be seen.

Read more:

Greece: Austerity plan goes through

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