The leaders of the European Union begin their two day summit in Brussels today with the debt crisis front and center on the agenda and the euro hitting fresh multi-month lows.
While a possible bailout for Greece will no doubt be the focus of the meeting, the greater health of the 16 member monetary union was once again put into question with Fitch downgrading Portugal's public debt yesterday.
Fitch reduced Portugal's public debt rating to 'AA-' from 'AA' and qualified its outlook as 'negative'. The rating agency pointed to Portugal's weak growth and large public deficit which stands at 9.3% of gross domestic product.
The euro has slid to a fresh 10 month low versus the dollar below 1.3300 as Europe's once common front to help debt-ridden Greece is showing serious cracks in the build up to the summit that had been expected to produce at least the framework of a rescue package for Athens.
It appears to be Angela Merkel versus the rest of Europe's heavy weights.
The German Chancellor has recently taken some step backwards on her earlier expression of solidarity for Greece by suggesting that Euro-Zone members who break the rules should be kicked out of the monetary union. Merkel was also adamant earlier this week that no bailout plan would be discussed at the summit.
This position of course flies in the face of what Athens has placed as a D-day for Europe. If Europe does not come up with some concrete plan to be implemented if necessary, the Greeks have said they may turn to the IMF.
The Germans, in turn, have fundamentally said "be my guest" to Athens.
The rest of Europe, however, appears to be against any IMF intervention in the Euro Zone as the loss of prestige would be irreparable. European Central Bank President Jean-Claude Trichet said this week in an appearance before the European Parliament that loans from other European members to Greece could be the answer.
Both the French government and European Commission President Jose Manuel Barroso join Trichet in backing a European solution.
The lines are drawn for what should prove to be quite a showdown over the next 48 hours.
In-Depth Analysis
- PBoC Zhu : Greek crisis just beginning; floating CNY FX by FXMarketAlert
- Euro Slides on Risk Aversion Over Greece Despite Good Data by CMS Forex
- Stocks tread Water in Limited Reaction to Greek Fiscal Woes by ForexHound.com
- EUR/USD Breaks Below 1.3450 as Fitch Downgrades Portugal's Rating by CMS Forex
- Is the IMF to Greece what China is to the U.S.? by Merk Hard Currency Fund
- Euro Plunges on Portugal Downgrade by ForexHound.com
- Fitch downgrades Portugal: Eurozone mess deepens by Interactive Brokers LLC
- Concerns Over Greece Bust Demand for Safer Assets by UFX Bank
Related News
- EUR/USD at 10-month low weighed by debt concerns on Greece and Portugal
FXstreet.com - Indices: European markets spooked, Portugal downgrade
FXstreet.com - Fitch downgrades Portugal's debt, says outlook negative
FXstreet.com - Greece is the word…
Forex Live
Analysts Comments
- Tiernan Ray, columnist for Barron's:
"The notching down of Portugal’s sovereign debt rating by Fitch Ratings this morning, to AA- from AA, has apparently added fuel to the bear case on the Greece, the Euro, and everything else linked to the PIIGS." - Barron's - Charles Forelle, journalist, The Wall Street Journal blog Real Time Brussels:
"Forgive us, but at times over the past few weeks the whole Greece bailout (or no bailout) thing has looked rather muddled. Or muddied. Or opaque. What with Germany maybe kicking in, or maybe not, and possibly also the IMF. And the bailout could be €10 billion, or €20 billion, or €22 billion, or €40 billion, or something like that. It’s coming at the February summit, or maybe the week after. Or perhaps the finance ministers’ meeting last Monday. Or their meeting Tuesday. Or at the big summit this week. And everyone insists that Greece isn’t asking for money. Everyone except Greece, which looks an awful lot like it’s going around asking for money." - Wall Street
