The lingering worry that Greece will default on its billions of euros of government debt could be ended within days, according to media reports from Europe.
Although Greece sold 5 billion euros of debt earlier this month, it has tens of billions more due next month and May (perhaps 20 billion) and it seems the eurozone wants to set up a way of handling any possible failure to rollover or sell new debt.
Detailed options for European-level financial support to help Greece out of its debt crisis were presented to eurozone finance ministers when they meet on Monday (overnight, our time). The meeting continues tonight..
According to European media reports, especially from London, the proposals include direct loans from individual governments and a system of loan guarantees, all tied to Greece’s strict observance of fiscal discipline and implementation of structural economic reforms.
But it will be more an agreement to do something, and a way of doing it, rather than an offer, because Greece has yet to make any request and says it will not need help.
The flurry of reports suggests that some sort of agreement for a process to cover future cases, will emerge from this meeting.
Reports suggest two main proposals will be on the table.
One involves a series of loans by European partner countries, coordinated by the European Commission, the EU’s executive arm; while the other would see the Commission borrow money on markets and extend Greece loans guaranteed by EU states.
An ending to the problem, with the eurozone countries deciding on a mechanism for helping Greece (and presumably other countries) avoid default, would buoy sentiment in markets around the world.
It would send European markets higher, although see a rise in the value of the euro.
That would in turn push down on the value of the US dollar and currencies like the Aussie dollar which touched a 13 year high against it on Friday and yesterday (and 25 year high against sterling).
That could also see commodity prices rise, especially gold and some metals as they usual respond quickly to any weakness in the greenback.
A failure, or an attempt that is not finalised quickly, could see the fears renewed.
The aid to be made available by the bailout could reach 25 billion euros, the Guardian newspaper reported. Greece needs more than double that amount this year (52.3 billion euros) in new borrowings.
Greece announced a 4.8 billion euro package of austerity measures last week designed to reduce its budget deficit to 8.7% of GDP this year from 12.7% in 2009.
The package saw widespread demonstrations from unions, anarchists and others opposed to the cuts.
Either way, there is every likelihood that the markets will refocus on the fate of Portugal, Spain and Italy and the UK, in no particular order.
The Financial Times reported the story.
"Members of the eurozone are working on the details of a possible bail-out for Greece ahead of a meeting in Brussels on Monday, although obstacles to a final agreement have yet to be overcome, according to several officials.
"The discussions have moved into high gear ahead of the gathering of finance ministers from the 16 European Union member states that use the euro.
“Speculation has risen that the meeting could yield an agreement to support the embattled Greek government with bilateral loans or loan guarantees as it tries to roll over as much as €55bn in maturing debt through the remainder of the year. Some €20bn will come due in April and May alone.
“The discussions have advanced, but the work has not been concluded yet,” said an official from the European Commission. Another official said a deal had not been reached, and that disagreements still remained over the size of a possible bail-out.
"One official said Germany and the Netherlands had yet to agree the rescue plan. “They (the Greeks) will be praised for taking tough measures. Then [the ministers will] have to make a commitment in general terms to the bail-out conditions, which would be finalised at a later date,” said one person with knowledge of preparations for Monday’s meeting."
It’s obvious from both reports that something substantive by way of a eurozone arrangement to support Greece is very possible.
While not a European Monetary Fund, as German Finance Minister, Wolfgang Schaeuble, suggested last week, it would go further than the previous arrangement where it was suggested Germany and France would guarantee all the Greek government bonds held by their banks. French and German banks account for a large majority of the billions of dollars of Greek Government bonds.
That knowledge had boosted fears about the worries regarding the financial positions of German and French banks.
Agreement could come as a significant time for the eurozone and other European economies.
The 4th quarter slump in growth may be a temporary thing, if production figures out Friday are a guide.
Industrial production in the eurozone in January grew at its fastest rate for more than 20 years in January.
It jumped 1.7% from December, which in turn saw its growth figure revised upwards to a rise of 0.6% instead of a fall of 1.7% as first reported.
That could mean the recovery is stronger than had been previously reported.
The revision means that industrial output in the 16-country currency bloc is higher than the year-earlier figure for the first time since April 2008.
But output stil
