Tuesday, 28 June 2011

France proposes solution to Greek debt problem

France has come up with a plan to solve the Greek debt crisis. Reuters reports:

France offered a radical solution Monday for banks to roll over some Greek debt for 30 years as the Greek government fought for political support of its five-year austerity plan to avert bankruptcy.

With depositors fleeing Greek banks in growing numbers and financial markets watching anxiously, President Nicolas Sarkozy told a news conference in Paris that French banks had reached a draft agreement with the authorities on a voluntary rollover of maturing bonds.

"We concluded that by stretching out the loans over 30 years, putting (interest rates) at the level of European loans, plus a premium indexed to future Greek growth, that would be a system that each country could find attractive," he said.

The plan was put to a meeting of international bankers and European Union officials with the International Institute of Finance (IIF) in Rome Monday but no decision was taken, an Italian Treasury official said.

However, it is not just Greece that has debt problems. AFP/CNA reports that China is also facing trouble from local government debt.

Chinese local governments held US$1.65 trillion in debt at the end of 2010, the state auditor said Monday, warning there was a risk some could default amid fears that bad loans will harm the economy.

Excessive borrowing by authorities to fund infrastructure and other projects has sparked concerns among China's leadership about the risks the loans pose to the financial stability of the world's second largest economy.

By the end of last year, local governments had taken 10.7 trillion yuan (US$1.65 trillion) in debts, the National Audit Office (NAO) said in a statement, or about 27 percent of China's 2010 GDP of 39.8 trillion yuan.

"The ability of some areas and industries to repay debt is weak and potentially risky," the NAO said.

While the US government also has a growing debt problem, it is the US consumer that showed signs of reining in spending on Monday. From Bloomberg:

Consumer spending unexpectedly stagnated in May as employment prospects dimmed and rising inflation caused Americans to cut back.

Purchases were little changed, the weakest outcome since June 2010, after a revised 0.3 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington...

Today’s report also showed that spending adjusted for inflation figures, which are used to calculate gross domestic product, dropped 0.1 percent for a second month. It was the first back-to-back decline in two years.


Anonymous said...

Great that people are finally discussing tangible solutions in public to help market confidence, but as the article points out other problems in the market place; answer me this what would happen if counties such as China started selling their US held securities to pay off their debt?

lim said...

The China debt mentioned in the post are local government debt, so selling US securities won't help pay them off.

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