Euro Zone Crisis: Back with a Vengeance

The coming months will be decisive in determining whether European leaders can hold their increasingly fragile currency bloc together or will stumble in the face of a daunting set of political, economic and financial obstacles lined up in their path at the start of the new year.

In Greece, where the crisis started over two years ago, the government is in a race against time to agree a bond-swap deal with banks that is crucial to a new 130 billion euro bailout package from European partners and the International Monetary Fund (IMF).

Without that package, Athens faces the threat of a debt default in March.

But talks with the banks and investment funds that are being asked to accept 50 percent losses on their Greek bonds to help pay for the bailout have dragged on for weeks, sowing doubts about whether Athens can really deliver.

“The risk of a disorderly Greek default is once again on the rise, with the threat of contagion to Italy and others,” economists at Barclays Capital said last week.

Compounding the challenge, both Greece and France face elections within months that could complicate decision-making at the national level in two key states and thwart the broader bloc’s ability to act swiftly at a time when pressure is high to bed down agreements sealed at an EU summit last month.

A key element of the summit package was a deal to funnel 200 billion euros to the IMF, money that could be used to offer precautionary credit programs to Italy and possibly Spain.

But the euro zone is struggling to get the 50 billion euros it needs from nations outside the currency bloc to meet its goal. A senior German official told Reuters on condition of anonymity that securing the participation of Britain, which has shown no inclination to contribute, was absolutely crucial.

Full Article via Reuters