Greece

Moody’s downgrades Greece to BA1 from A3.

• we will honour contracts with banks
• says ‘we will pay our debts’

News headlines reported overnight that French president Nicolas Sarkozy threatened to pull out of the euro unless German Chancellor Angela Merkel agreed to back the European Union bailout plan at a summit last week in Brussels, according to El Pais newspaper. According to rumors out of Spain, Sarkozy stated “If at this point, given how its falling, Europe isn’t capable of making a united response, then there is no point to the euro” Euro is currently trading slightly under $1.25

• Says he doubts Greece can repay debt in full
• “Greek repayment requires unbelievable efforts”
• “Europe must stabilize Greece, avoid contagion
• “Europe must avoid Greek debt restructuring
• Says Italy, Spain, “strong enough” to service debt, more difficult for Portugal to service debt
• Says Euro is “fundamentally strong”

The comment that “Greece not able to repay debt in full” may be shocking but it is part and parcel with the aid package.

Greece has received the first 5.5 Billion Euro (7 Billion USD)  from the IMF for austerity cuts.

Feds Plosser says recent developments in Greece a risk to the United States Economic forecast, renewed financial market turmoil could retard United States recovery.

Good Morning:

The Euro rose as signs that Greece is close to an agreement on the budget cuts  that are necessary to approve the bailout package that the country needs to alleviate default.  The speculation that the rescue package may get announced early next week added an optimistic picture that is giving the Euro some support.  The JPY and USD lost some steam as the Euro moved higher.
On another note-Spain’s unemployment rate rove above 20%, adding woes to the Spanish governments attempt to cut the EU’s third largest budget deficit.

Moody states that there will be  a complete review of Greece after there details of Eurozone/IMF program are unveiled. A multi-notch credit downgrade for Greece is likely.

The question is “how many notches is a ‘multi notch decline’?” Currently Greece is 4 notches from having debt not accepted as collateral at the ECB. If multi is 2 or 3 then the debt is safe for now. If 4 notches, trouble. The other question is when will the full details be available.

• “deficit problems to be “tackled at the roots”
• “we have to go through painful process with Greece”
• “painful processes must be untertaken to cut debt”
• “cant let Greece become another Lehman bros”
• “when euro stability in danger all members will help”
• “not my job to judge work of rating agencies”
• “healthy state finances help prevent speculation”

Good Morning:

Europe’s continuing debt crisis is worsening as Greece was downgraded to junk status, and the cost of borrowing rose for the other PIGS countries (Italy,Portugal,Spain, and Ireland).  In the meantime, German Chancellor Terkel delays approval of the Greek rescue package.
The Euro traded to a near one year low against the USD as speculation mounts that the EU/IMF bailout for Greece will be insufficient, and that the sovereign debt issues will spread to neighboring EU countries.