Greek/German Bond Spreads Widen

The already troubled euro remains under pressure as spreads widen between Greek and German bonds.  A lack of details about the timing and amount of the EU/IMF aid package caused investors to sell the euro. The euro fell against the dollar for the seventh straight trading session and briefly fell below $1.33. Last Friday Greece requested aid and tried to reassure markets that the 45 billion Euros ($60.5 billion USD) loan package will arrive soon enough to prevent a default by the debt hobbled nation. On Monday German Chancellor Angela Merkel said that Greece will have to implement even more austerity measures and prove the measures are sustainable to obtain German approval for the aid package. The gap between German and Greek bonds widened to 679 basis points, the highest since the euro was launched in 1999. The lack of details about the EU loan package has made investors wary. Marco Annunziata of UniCredit MIB stated, “It is extraordinary that a euro zone member country finds itself a mere three weeks away from a potential default, with a clear possibility that uncertainty will only be resolved at the last minute.”

French Finance Minister says Greece Must Adopt Additional Austerity Measures

French Finance Minister Christine Lagarde also stated that Greece must adopt additional austerity measures to gain France’s approval of the loan package.  Lagarde recognized that investors have perceived the situation surrounding the agreement as “chaotic” causing euro volatility and sending bond spreads to record levels. Lagarde said the EU must address the Greek debt crisis together and said that there will be no default by Greece and that “it will take what it will take” to save Greece.  Lagarde also said that Greece must cut wages ‘significantly’, cut more spending and raise the retirement age. Lagarde said that the IMF will monitor Greece’s implementation of further austerity measures. The French Finance Minister believes that Greece got itself into the currency situation by using inaccurate statistics to report on its budget and deficits. Lagarde said that the E.U.’s statistics agency, Eurostat, must have the power to monitor the budgets of EU member nations. Lagarde pointed out that future growth will require solid public finances and that nations cannot borrow from future generations to fuel [present growth.

Euro Falls vs. Dollar, Yen

The euro fell 0.5% against the US dollar to $1.3323 and fell 0.1% vs. the Japanese yen trading at 125.55 yen. Michael Malpede of Easy Forex in Chicago stated, “Aid for Greece still doesn’t seem like a completed deal, so all the uncertainty about the timing and details of a Greek plan limits demand for euro.”