Meeting on Greece 'cancelled'

Tue, Feb 14, 2012, 00:00

European officials today increased the pressure on the Greek government to deliver budget cuts in exchange for a second bailout as a meeting scheduled for tomorrow was downgraded.

Finance ministers today cancelled a Brussels meeting slated for tomorrow and will hold a teleconference instead to persuade Greece to do more to clinch an aid package worth €130 billion along with some €100 billion of debt relief from private bondholders.

"I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program," Luxembourg prime minister Jean-Claude Juncker, euro group president, said in a statement today.

Mr Juncker said he was still awaiting written undertakings from Greek party leaders on pushing through with the austerity package of pay, pension and job cuts - which parliament passed yesterday.

He also pressed for "further technical work" on Greek budget cuts.

Earlier today, there was muted reaction on stock markets today to rating agency Moody's downgrade of six European countries.

Moody's yesterday cut the rating of six countries, including Italy, Spain and Portugal, citing growing risks from Europe's debt crisis and warned it may cut the AAA ratings of France, the United Kingdom and Austria.

World stocks retreated and the euro slipped this afternoon after US retail sales rose less than expected in January, even as the data suggested a solid underpinning for the economy's recovery.

European shares had earlier risen after a key German economic indicator showed German analyst and investor sentiment rising to a level not seen since last April, bolstering hopes that Europe's largest economy was recovering and eased debt fears.

The ZEW economic thinktank's monthly poll of economic sentiment jumped to 5.4 from -21.6 in January, while the consensus forecast in a Reuters poll of analysts was for a rise to -12.0. "Based on past experience, it is thus a clear signal for an economic turnaround," Commerzbank economist Ralph Solveen said.

A successful bond auction of three-year debt by Italy, where yields fell to their lowest level since March 2011, added to the sense that risk aversion prompted by the Moody's announcement was overdone.

"Good auction, pretty much unaffected by yesterday's downgrades from Moody's," said Peter Chatwell, a rate strategist at Credit Agricole CIB.

Moving less aggressively than rival agency Standard & Poor's last month but putting the United Kingdom's rating in jeopardy for the first time, Moody's said it was worried about Europe's ability to undertake the kind of reforms needed to address the crisis and the amount of funds available to fight it.

It also said the region's weak economy could undermine austerity drives by governments to fix their finances.

The US rating agency said it changed the outlooks for the ratings of France, the UK and Austria to negative due to "a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns' balance sheets".

Germany's top-tier rating was described as "appropriate" by Moody's and it affirmed the triple-A rating on the euro zone's bailout fund, the European Financial Stability Fund.

Moody's, which said late last year it was reconsidering its European ratings, cut by one notch the ratings of Italy, Portugal, Slovakia, Slovenia and Malta and downgraded Spain by two notches.

Moody's said the scope of the downgrades was limited due to "the European authorities' commitment to preserving the monetary union and implementing whatever reforms are needed to restore market confidence."

The announcement came a day after Greece's parliament approved a deep new round of budget cuts in the hope of securing new bailout funds and avoiding a chaotic default in March.

The rating outlooks of the nine countries affected by Moody's action was set to negative, "given the continuing uncertainty over financing conditions over the next few quarters and its corresponding impact on creditworthiness," Moody's said.

Chancellor George Osborne responded by saying Britain must keep its promise to slash its large budget deficit.

"This is proof that, in the current global situation, Britain cannot waver from dealing with its debts," Mr Osborne said. "This is a reality check for anyone who thinks Britain can duck confronting its debts."

The British government has come under increasing pressure to soften its austerity measures to give a stalling economy room to breathe.

The French government said it will press ahead with its policies to improve competitiveness and growth while reducing the government deficit. "The government is determined to press ahead with its actions to boost growth and competitiveness, notably the reform of the financing of welfare, of employment and the reduction of public deficits," French finance minister Francois Baroin said in a statement.

Moody's move follows one by Standard & Poor's last month, when France and Austria lost their triple-A status, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia and Slovenia were downgraded. S&P also cut the EFSF by one notch.

Also last month, rating agency Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain, indicating there was a 50 per cent chance of further cuts in the next two years.