France sells as much as 8.7 billion euros ($11 billion) in bills tomorrow, offering the first gauge of the decision’s impact. History suggests the reaction may be limited. Ten-year yields for the nine sovereign borrowers that lost their AAA ratings between 1998 and the U.S.’s downgrade in August rose an average of two basis points in the following week, according to JPMorgan Chase & Co.
EFSF Impact
“I think we will still have to fight for a while with the fact that investors haven’t regained full confidence in the euro,” Merkel said in the radio interview today. Debt-cutting steps being taken by the new Italian and Spanish governments will “convince markets in the medium term,” she said.
Merkel said yesterday in Kiel that the S&P downgrades won’t “torpedo” efforts to provide financing to indebted member states by weakening the current bailout fund, the European Financial Stability Facility. The EFSF could provide firepower even if its creditworthiness sinks below AAA status, she said.
“I was never of the opinion that the EFSF necessarily has to be AAA,” Merkel said. “AA+ is also not a bad rating,” Merkel said, citing a remark made by French Finance Minister Francois Baroin.
Germany and France are pushing for stricter budget rules as the bedrock of European governments’ response to the debt crisis that emerged in Greece in late 2009 and is now buffeting Spain and Italy. Merkel and French President Nicolas Sarkozy will meet with Italian Prime Minister Mario Monti in Rome on Jan. 20 to prepare for a European summit 10 days later.
Greek Debt-Swap Talks
Threatening to overshadow the Rome meeting are Greek debt swap talks that stalled two days ago and may resume Jan. 18.
Merkel today in her radio interview urged the Greek government to make good on debt-cutting commitments and banks to uphold their pledges of a debt writedown made in October.
There is the “expectation that Greece implements the measures it has accepted,” Merkel told Deutschlandfunk. At the same time, she said she expects the International Institute of Finance, the negotiator for the banking industry, “keep to its commitments,” including a 50 percent writedown of Greek debt.
Greece aside, S&P acted at the end of a week in which signs grew that Europe’s woes may be cresting as borrowing costs fell, evidence of economic resilience emerged and the European Central Bank said it had quelled a credit crunch at banks.
Merkel: Euro Leaders Must Redouble Efforts
Zurück
