Time to decide

Atlanta, GA 6/26/12 (StreetBeat) -- All those involved in finding answers for the questions about the future of the European Monetary Union (EMU) insist that more Europe, not less, is the solution. There is a not an issue about a lack of desire to keep the euro zone together. And it can be said that the participants who are charged with figuring out the shape of things to come for the single currency membership understand that they must be credible from this point forward in a way that they have not always been since this crisis began more than two years ago. They will reiterate these aspirations and goals when they meet in Brussels at the end of the week and will present a plan that, they will say, is sure to achieve them. Of this we can be sure.

However, I think it can be said that there are conflicting views amongst the European leadership as to what “more Europe” means. And if there is not a unified concept on the final destination, then there cannot be a general agreement on the path that should be taken to get there. Given that set of circumstances it will be difficult, if not impossible, for anything that comes out of the summit to resonate with credibility in the marketplace and suggest that a sustainable solution has been reached. And if this summit does not provide a believable road map for the future of the EMU, even one that would take years to traverse, the market, more specifically the nuts and bolts of the financial system, could take over control of the situation and crash the whole project. “The very survival of the euro is under threat,” said former ECB council member Athanasios Orphanides at the end of last month; and it is possible, I think, that this week’s summit could mark the time when Europe’s wheels hit the ditch.

The EU summit will deliver a plan. Maybe it will be some variation of the banking union being pushed by Draghi, Van Rompuy, Barosso and Juncker. It may include a growth stimulus package and even another spin on the potential uses of the euro zone bailout funds. The market might even applaud the plan; a master stroke indeed!

But I think the time has come for the euro zone to deal with the fundamental cause of the currency union’s instability instead of only addressing the symptoms. Without more Europe underpinning the single currency it is hard to see how any plan will have a lasting positive effect. If the euro zone is not prepared to move closer together, credibly advancing towards a fiscal union, then it is likely that financial instability will force the membership apart. “One market, one currency” has come up short; it has exposed the differences amongst the nationalities involved rather than highlighting their similarities as Europeans. However, what are they supposed to do when some members consider a fiscal union to be an embrace while others think it will be a choke hold? Even if they had a common vision, how are they supposed to proceed when some members want to jump into bed right away while others insist on waiting until the marriage is official?

French President Hollande speaks for one contingent of Europe when he tells Merkel that a loss of sovereignty can be discussed tomorrow if she would just loosen Germany’s purse strings today. To Hollande the so called mutualization of Europe’s debt burden is a sign of solidarity that should be a precursor to mutually deciding on one another’s budgets. To Merkel and the Bundesbank the idea of joint liability is something that can only be introduced at the end of an integration process, not at the beginning. To the Germans it is no surprise that the countries that are now confronting the most acute financing problems are the ones that are most adamant about instituting joint liability ASAP. To Hollande and Europe’s periphery Germany has been a huge beneficiary of the single currency and it is not out of line to expect a helping hand instead of just the back of the hand. “Tomaaaato! Tomahhhhto! Potaaaato! Potahhhhhto! Errrr, let’s call the whole thing off….no, no, no, let’s not. Another plan will buy us another day.”

Another summit, another plan, another reprieve from the speculators, “We need to use all existing mechanisms to stabilize markets, to give confidence, to fight speculation,” said President Hollande over the weekend. Leaving aside the discussion as to what measure of the market movements in recent years has been the result of speculation, it seems to me that in the months ahead the thing that Europe must concern itself with is the rational decision making by banks, businesses and individuals. It has been reported that corporate treasurers sweep their euro cash balances out of European banks every night; who can blame them. Credit Agricole says it has repatriated its assets from its Greek subsidiary; taking a cue from the exodus of individual depositors? The French retailer Carrefour sold its stores in Greece for one euro to its local joint venture partner. “Power traders in at least four countries have reduced or halted electricity exports to Greece due to non-payments,” reports Bloomberg. “Euler Hermes, the world’s largest trade credit insurer, has said it will no longer cover deliveries to Greece,” says the Financial Times; a Greek retailers group says the move is of “exceptional concern, if not catastrophic.” Sure these signs of caution all involve Greece, but I don’t think those seeking haven in Swiss banks or in German securities are all from Athens.

These rumblings in the financial plumbing of Europe are not speculation, but rational decisions when doing business in a region for which there is little known about the path it will follow in the months and years ahead. It seems to me that if this week’s summit does not deliver a credible plan involving a fiscal union, something that can be believed to permanently solidify the foundation of the euro zone this kind of decision making will continue. And, if that is the case the economies of member nations will be all the worse for it. Will the financial strain make them dramatically run into one another’s arms in manner that, at the present time, they do not seem capable, or will it force them apart? The time to decide is fast approaching.

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The Week Ahead; The Worst Case Scenario

Palm Beach, FL 5/22/12 (StreetBeat) -- As one can readily imagine, a man in my position is constantly on the move. You don’t get to be the assistant to the deputy administrator for monocotyledon classifications of the European Union’s Community Plant Variety Office (CPVO), regional sub-division in Brussels, without being a go getter. It can certainly be said that I fill my seven hour work day with action befitting my portfolio. That kind of exhausting schedule really builds an appetite, which I feel I can sate by justifiably tapping the CPVO expense account, but of course.

So I find myself once again settling into the familiar surroundings of Comme Chez Soi. You must know it, the Michelin three star joint just off the Avenue de Stalingrad. Sure its upper end, but I do the EU a great service and this is quid pro quo at the very least. Besides, as their wine list clearly states they carry “a fully detailed and well supplied heading of white and red wines for less than EU100.” Not that I care to drink that swill, but I could if need be. But then again do you really think the EU would want a key team member, such as myself, to lower his standards and possibly risk having that reduced vision creep into one’s mission; yeah, I know it’s ridiculous to even consider it, but it’s my nature to look at all sides of an issue.

Waiter: Good evening, once again, sir. Would you like to start with the usual?

Why not? The Royal Belgian caviar “Oscietra Gold” sounds great.

You work for the European Union, don’t you sir?

That’s who pays the bills.

Well, a couple of top ministers dined here just shortly before you arrived. They had a fascinating conversation about the situation with Greece and the chance that they could leave the currency union and go back to the drachma. Very interesting indeed; what do you think will happen?

Hmmm, actually I’m knee deep in trying to figure out how the EU can charge a fee to Eastern Europe for wind-blown pollination from Western European grasses. Tricky and important stuff like that leaves me no time to worry about how to pay for a holiday in Greece. What happens in Athens stays in Athens, right?

Not quite sir, not according to the ministers. They say that there was never before a thought given to the possibility that a country could leave the euro zone, that the only thing to worry about was how to accommodate the new arrivals. But since last autumn there has been a recognition, up to the most senior levels of European leadership, that Greece could exit the single currency union; might actually be asked to go, in a here’s your hat what’s your hurry sort of way. The ministers said that some contingency plans are being made, even by the ECB, to prepare for a Greece exit.

They seemed very worried about the Greek vote coming up in June; “never good to have the people decide their own country’s fate,” they said, it was like the blind leading the blind; you never know who they might elect, maybe even someone who will lead them out of the euro and back into the drachma.

Well good riddance, I say. I’ll take the Beef fillet with black truffles please.

The beef, certainly sir. But, in regards to Greece, the ministers were not too sure about the riddance being good if Greece were to leave. They kept referring to the “worst case scenario”. The vote in June, they say, may end up being the catalyst for Greece to exit the zone and because of that senior EU leadership has a conscious strategy to make it very clear to the Greek voters that if they decide to cut and run the consequences will be ominous; the country will be ostracized, their economy will be in ruins and they will lose an entire generation to emigration in search of work. They want to be sure the voters in Athens hear them loud and clear that leaving the euro zone would be a disaster for them.

Well, that could be my good man, but I am pretty sure the “worst case scenario” is that the banks in the rest of Europe, including the national central banks, such as the Bundesbank, will take a hit on any debts owed by Greece because, sir, who in their right mind would want to be paid in drachma?

Well, no that was not the “worst case scenario” that seemed to have them terrified. They were not happy about the potential losses that would result from Greece leaving; both from Greek debts and from the fear of contagion rippling through to the debt of other countries such as Spain, Portugal or Ireland. But they figured that they could build a tall enough firewall to fence in the remainder of the zone and fence out most of the ripple effect from Greece. It wouldn’t be the best thing ever, but not the “worst case” either. It could even turn out that a disastrous outcome in Greece from their decision to leave the euro and print the drachma would focus their minds in the euro zone and result in a more comprehensive union; fiscal, political, etc that would satisfy everyone, even Germany, without going overboard with Berlin’s austerity hair shirt.

Espresso please. But first please tell me what this terrifying “worst case scenario” of which the ministers spoke?

Clearly there is one thing that has the EU ministers most afraid. The “worst case scenario” that could bring down the euro zone as we know it.

What? What is it?

The “worst case scenario” is that Greece stops using the euro, re-installs the drachma and that the country prospers, possibly in short order, as a result. The ministers were as white as ghosts when they talked about Greece improving its current account deficit with cheap exports and a reinvigoratedtheir tourist industry. Olive oil and other products leaving the country in massive amounts while discount seeking vacationers come in at a record pace. They shuddered as they discussed the possibility of China investing in the Greek infrastructure and revitalizing the Mediterranean ports as their own logistics center for exports to the rest of Europe.

And if all this were to occur, the ministers moaned, then what will be the reaction in Madrid, Dublin, or, don’t even say it, Rome? They envisioned mass protests by the otherwise unoccupied youth in those countries, possibly leading to, don’t say it, more votes that become referenda on using or leaving the euro. And they worried that one or more of these other exiteers could see the advantage of being an early mover and then no firewall would be big enough to cover the losses on the debt from these countries. The worst case is Greece succeeding on its own, not the reverse.

The ministers left without desert.

This cannot be good for the EU Plant Variety Office, check please.

Should I add it to the EU tab?

But of course.

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2012 Jargon, part 3; European TARGET2

Palm Beach, FL 2/15/12 (StreetBeat) -- Greece owes more money than it can repay. There is some measure of concern that the story is the same for Portugal and Ireland; maybe even Spain, possibly Italy if things don’t go according to Hoyle. While the focus has been on the sovereign debt from these countries, they also have other liabilities that some people fear will not be made whole. Additionally there is a line of thinking that the growth and financing of these other liabilities is an indication of a balance of payments crisis in European central banking that could shake the euro zone to its foundation. There are differing opinions on this topic, but it is probably better to be aware of its existence, just in case it becomes a flash point.

Each country that uses the euro as its currency has its own National Central Bank (NCB). The NCBs interact with their domestic banking system and interconnect with other countries’ banking systems through the European Central Bank (ECB). In order to facilitate cross border payments the euro zone has a transaction settlement system. This system is known as TARGET2; it stands for Trans-European Automated Real-time Gross settlement Express Transfer system. The 2 indicates a change to the original TARGET system in November 2007.

TARGET2 is not something that should be noticed; it is the plumbing, not the nice fixtures. TARGET2 pipes have not become clogged, nor has a leak been sprung, the system is functioning. But the flow of payments within this system has become significantly imbalanced and as a result is now the source of great consternation, especially for a well regarded German economist, because of its implications for ECB monetary policy in general and the well being of the Bundesbank in particular.

When there is a cross border transaction in the euro zone a TARGET balance is created, explains Hans-Werner Sinn, the very concerned President of Germany’s IFO Economic Research Institute, in his paper called Target Loans, Current Account Balances and Capital Flow: the ECB’s Rescue Facility. For example, “a Greek transportation company buys a German truck. With the bank transfer the money flows to the Greek central bank and ceases to circulate in Greece: i.e. it is destroyed there. Conversely, the Bundesbank must carry out the transfer and to do this it creates new money that flows to the manufacturer via its commercial bank. A TARGET liability is assigned to the Greek central bank on the amount of the transfer request vis-à-vis the ECB, and conversely the Bundesbank receives a TARGET claim on the ECB.” From the beginning of the use of the euro currency and this transfer system the TARGET accounts were roughly in balance throughout the system. The Bundesbank for instance was almost as often a debtor in the system as it was a creditor; in the early years from 1999 up to early 2007 the German central bank rarely had a TARGET balance in excess of EU30 billion on either side of the ledger; and that is how it was envisioned. “When the TARGET system was established, it was assumed that the balances would be insignificant,” points out Sinn in the paper I cited above. “As insiders have reported, the belief prevailed at the time that the balances would virtually net out daily, and it was thus not considered necessary to put a cap on them. They were to have the character of short-term checking account credits to smooth out the peaks in monetary transactions.” It was not considered to be necessary to zero out the balances in this system on a regular schedule because the regular flow of funds would periodically zero out themselves; the NCB quid pro quo was all that was assumed to be needed, a huge imbalance was not imagined.

But once the global economy hit the skids in late 2007 the TARGET system began to take on a different form as the Bundesbank began to accumulate credits on the ECB. Not that anyone noticed right away. Since the ECB credits and liabilities in the TARGET system always net out to zero, there was nothing to seen on their balance sheet to signal imbalance. In order to take note of the lopsided situation it is necessary to find the data on the individual NCB balance sheets; the Bundesbank, for instance, identifies the TARGET balance as EU8148.

As of January 2007 the Bundesbank’s TARGET balance was a EU13.0 billion credit; by the end of that year the credit was EU71 billion. When the Greek budget fiasco first came to light at the end of 2009 the Bundesbank TARGET credit balance had grown to EU178 billion. As of last month the credit was an all-time high of EU498 billion. It should be noted that one of the key reasons for the growth of the Bundesbank balances is that private citizens in the troubled countries have been transferring their bank accounts out of their own country and into Germany, in order to prevent a surprise return to the Drachma, Punt or Escudo suddenly reducing their savings.

While the Bundesbank has ECB credits, the other side of the ECB’s ledger contains the liabilities for a corresponding total in the accounts of the central banks of Ireland, Greece, Portugal, Spain and beginning in the middle of last year, Italy. The Netherlands finds itself collecting ECB credits along with the Bundesbank, but in much smaller quantities than the Germans; the rest of the euro zone is much closer to balance than the countries I have mentioned here. It can be said, and the IFO’s Sinn does, that this essentially creates a Bundesbank loan to the ECB for the amount of the TARGET credit; a loan that is then passed along to the PIIGS.

It can also be said that if any of these countries were to leave the euro zone it would be the Bundesbank that is on the hook for the loan, not the ECB. While it is true that should Greece, et al, hit the road that Germany would officially be liable for only 27% of the total left unpaid, Sinn is not so sure a euro zone in disarray would be in a position to honor that commitment.

Sinn also figures that the TARGET imbalances are an indication that the NCBs of the deficit countries have printed money to cover their imbalances. His assumption therefore is that a transfer union already exists and threatens to get bigger. On the one hand Sinn is concerned that Bundesbank will not get paid in full on its de facto loans to the euro zone banking system. But on the other hand he is concerned that the imbalances will grow ever larger unless the Bundesbank draws a line in the sand. His IFO group issued a declaration last October saying that Germany should insist on radical changes in the current monetary regime, including the payment of TARGET system debts, or that his country should leave the currency zone if their suggestions are not adopted.

While the IFO opinion may not be widely held in official circles in Germany, it likely has some constituents, maybe even some quiet supporters at the Bundesbank. Officially of course Sinn’s opinion and research on the matter are at the very least inconvenient for European central bankers. When he first broached the matter early last year the Bundesbank pushed back; they said the imbalances in the TARGET system were inconsequential, a reflection of the times and something that would eventually work itself out. The ECB said similar things when they addressed the issue in their October 2011 Monthly Bulletin after Sinn persisted with his argument. Even the New York Fed chimed in with an essay on the topic in December in the Liberty Street Economics publication, reiterating the “move along, nothing to see here” previously expressed by the European bankers.

It just seems to me that if you hear the term TARGET2 being used in anger by a market participant, it may be something you want to pay attention to.

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Greek Debt Inspectors Complete Review

Tomahawk, WI 10/11/2011 (PennyPayDay) – Greece's international debt inspectors have completed their review of the government's reforms, and that if its conclusions are adopted by the eurozone and IMF, the country is likely to receive the next batch of its bailout loans in early November.

The inspectors from the International Monetary Fund, European Commission and European Central Bank, collectively known as the troika, said Tuesday that Greece's deficit targets for 2011 were "no longer within reach," but that additional measures announced were adequate for 2012. They said additional measures would be needed for 2013-2014.

The eurozone debt crisis has reached a systemic dimension that threatens banks and the wider economy, European Central Bank president Jean-Claude Trichet warned Tuesday, as Greece awaited approval of bailout loans it needs to avoid bankruptcy.

Trichet said "the crisis has reached a systemic dimension" and spoke out strongly in favor of boosting the continent's banks' health with new funds to weather the sovereign debt crisis.

Speaking as head of the eurozone's new risk-watchdog, the European Systemic Risk Board (ESRB), he told a European parliament Committee in Brussels that market fear about government debt has spread to capital markets around the world and is drying up bank funding.

"The banking sector in Europe needs recapitalization, that is part of our message," Trichet said.

Now "it is a matter of urgency" that governments move "decisively to tackle" the crisis, he added. "The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion."

Trichet's warning came as Jean-Claude Juncker, prime minister of Luxembourg and head of eurozone finance minister meetings, said Greece's bondholders would have to take sharp writedowns.

He was quoted late Monday by Austrian state broadcaster ORF as saying that eurozone countries are "talking about more" than a 50 to 60 percent haircut for Greece, though his spokesman later corrected his statement to say he meant more than 21 percent.

Experts and investors believe Greece's debt situation is untenable, even with more reforms and austerity measures, and will need to write off some of the money it owes bondholders.

Greece's second bailout, which was agreed in July but has yet to be finalized, proposed a 21 percent cut in bond repayments. Economists, however, say a 50 percent reduction would be necessary.

In the near-term, Greece depends on regular installments of bailout loans, but whether it gets the next euro8 billion ($10.9 billion) will depend on a review of its reforms by international debt inspectors to be wrapped up on Tuesday.

The International Monetary Fund, European Central Bank and European Commission are checking whether Greece has done enough to qualify for the next batch of its vital international bailout loans. Without them, the country will run out of money to pay pensions and salaries by mid-Novemeber and could be unable to repay bondholders in December.

As the debt inspectors concluded their talks, protests caused more disruption in the capital.

Workers at a key refinery went on strike, sending motorists who feared a fuel shortage to form huge lines at gas stations to fill up. A strike by municipal workers has left garbage piling up in in mounds on city streets for days. Protesters have also staged sit-ins of state buildings, including those of the water company.

Greece has been locked out of the international bond market for more than a year due to the high interest rates demanded for its bonds, but regularly issues short-term treasury bills.

The country raised euro1.3 billion ($1.8 billion) on Tuesday in the auction of 26-week treasury bills at an interest rate of 4.86 percent, marginally higher than the 4.8 percent yield in a similar sale on Sept. 6, the debt management agency said.

Demand was also slightly lower, with Tuesday's sale 2.73 times oversubscribed compared to 3.02 times in September. The country had initially been seeking to raise euro1 billion.

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Markets Down on Greece Fears

Nokomis, WI 10/4/2011 (PennyPayDay) – Stock index futures fell on Tuesday, a day after equities hit 13-month lows, on increased worries about a major banking crisis in Europe and expectations Greece would default soon.

* Wall Street has fallen for the past two sessions and the broad S&P 500 index was on the verge of entering bear market territory.

* The STOXX Europe 600 Banking Index (^SX7P - News) sank 4 percent on Tuesday while Franco-Belgian bank Dexia (Brussels:DEXI.BR - News) plummeted 17 percent to a record low because of its Greek exposure. European shares tumbled 2.6 percent. (^EU - News)

* U.S. banks were likely to remain in focus and continue to be pressured by the same issue. On Monday, Morgan Stanley (NYSE:MS - News) closed at its lowest since December 2008.

* European finance ministers were considering making banks take bigger losses on Greek debt and delayed a vital aid payment to Athens until mid-November, setting up a crunch point in the region's sovereign debt crisis.

* S&P 500 futures fell 6.4 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures sank 81 points, and Nasdaq 100 futures lost 11.5 points.

* The benchmark S&P is down 19.4 percent and near bear market territory, which would be a 20 percent decline from its recent high set on April 29.

* Later Tuesday, U.S. Federal Reserve Chairman Ben Bernanke will testify before the Joint Economic Committee in Washington on the economic outlook.

* Data on durable goods and factory orders, both for August, will also be released at 10 a.m. EDT.

* Fast food chain operator Yum! Brands Inc (NYSE:YUM - News) is on tap to report quarterly results.

* Apple Inc (NasdaqGS:AAPL - News) is expected to unveil a new version of its popular iPhone, hoping to fend off hard-charging rivals running Google Inc's (NasdaqGS:GOOG - News) Android system.

* The Dow and S&P dropped more than 2 percent on Monday, slumping to 13-month lows in heavy volume on fears Greece's debt woes could spark a full-blown banking crisis in Europe. The Nasdaq fell more than 3 percent.

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Update on Greece Not Good

Nokomis, WI 10/3/2011 (PennyPayDay) – Stocks were little changed on Monday as positive U.S. economic data helped to offset fears Greece may require increased euro zone financial assistance after news it will exceed its deficit targets.

Wall Street began the new quarter with choppy trading after falling on Friday to end its the weakest quarter since 2008. The decline was sparked in part by worries over the financial crisis in Europe and the threat of recession that could drag down economies around the world.

Greece's draft budget sent to parliament on Monday showed Athens would miss its deficit targets for both this year and next despite harsh new austerity measures.

The revelations brought the specter of a Greece default closer as euro zone finance ministers met to discuss the next steps toward resolving the currency area's sovereign debt crisis.

"This news isn't surprising, but if Greece continues to have problems that could really drag Europe into recession, and possibly the U.S. as well," said Randall Warren, chief investment officer of Warren Financial Service in Exton, Pennsylvania.

Stocks briefly rebounded after the Institute for Supply Management's September manufacturing index topped consensus forecasts and the government said August construction spending unexpectedly rose.

"The data supports the minority view that things are going to get better," Warren said. "You can't discount that view even as the market finds it hard to believe, and that's why things are so choppy today."

The Dow Jones industrial average was up 24.00 points, or 0.22 percent, at 10,937.38. The Standard & Poor's 500 Index was up 0.46 points, or 0.04 percent, at 1,131.88. The Nasdaq Composite Index was down 2.72 points, or 0.11 percent, at 2,412.68.

The S&P 500 index lost more than 14 percent in the third quarter and fell more than 7 percent in September alone.

Yahoo Inc rose 4.2 percent to $13.74 after the founder and chief executive of Chinese e-commerce company, Alibaba, expressed interest in buying the company and said he has talked with other potential buyers.

Eastman Kodak Co surged 93 percent to $1.50 after losing half its value on Friday. The photography company has hired a law firm specializing in bankruptcy but said it had no intention of filing for bankruptcy.

Pharmaceutical Product Development Inc climbed 26 percent to $32.41 after it agreed to be acquired by Carlyle Group and Hellman & Friedman for $3.9 billion in cash.

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Little Changed as Greece Plans Emerge

Shawshank, VA 9/27/2011 (PennyPayDay) – The euro traded lower against the dollar and the yen on Monday, in volatile trading, as doubts over officials reaching an agreement on a resolution for the debt crisis bubbled to the surface.

European officials are considering a plan to make sure that Greek default will not spread into the rest of the euro zone’s banking system.

Newspaper reports suggest that officials are mulling a plan that would allow Greece to default, recapitalise banks and increase the European Financial Stability Facility fund way beyond its current €440bn capacity.

However disappointment remained following unfruitful International Monetary Fund and G20 weekend meetings. The euro was at $1.3486, down around 0.1% on Monday. The single currency was also down 0.3% against the yen at 103.02 yen.

The dollar too was lower against the yen, down 0.3% at 76.38 yen. The dollar index, which measures the US dollar against a basket of six other currencies, fell 0.3% at 78.284.

The dollar also lost ground to the pound on Monday however sterling remains susceptible to selling against the dollar on concern that the Bank of England could unleash more monetary easing to bolster sluggish growth.

The greenback has risen by around 6% against the pound over the last month on fears over further QE in the UK, the eurozone debt crisis and the weak US economic outlook.

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Greece Sharpens Austerity Measures

Oxford, MS 9/22/2011 (PennyPayDay) – Greece adopted yet more austerity measures on Wednesday to secure a bailout installment crucial to avoid running out of money next month, as the IMF warned that Europe's sovereign debt crisis risks tearing a giant hole in banks' capital.

The Greek cabinet agreed to cut high pensions by 20 percent, put 30,000 civil servants in a "labor reserve" on a road to redundancy, lower the income threshold for paying tax and extend a real estate tax, a government spokesman said.

"The measures taken today allow us to comply with the bailout plan through 2014," the spokesman, Ilias Mossialos, said.

The new package is designed to ensure Greece gets an 8 billion euro rescue loan vital to pay state salaries and bills in October. Senior European Union and International Monetary Fund officials are to arrive in Athens early next week to review progress, Mossialos said.

Greece is on the front line of the euro zone debt crisis that has engulfed Ireland and Portugal and now threatens Italy, Spain and some of Europe's biggest banks, risking plunging the West back into recession.

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Euro Steadies As Officials Discuss Greek Solution

Wausau, WI 9/14/2011 (PennyPayDay) – The euro was stable Wednesday morning in New York, supported by tentative hopes that Europe will act decisively to manage their sovereign debt crisis.

European leaders are scrambling to avoid the contagion that may be brought on by a Greek default that appears more inevitable with every passing day. Greece's Prime Minister will hold a conference call with his counterparts from Germany and France this afternoon.

Europe has the capacity to confront its sovereign debt crisis and will not allow its largest to fail, U.S Treasury secretary Timothy Geithner said Wednesday.

Europe won't allow a Lehman Brothers event to happen, Geithner told CNBC's Jim Cramer ahead of his meeting with European Union finance ministers in Poland.

With China reportedly in talks to backstop Italian debt, markets are expressing very cautious optimism that a wider crisis can be averted.

The European Commission will soon present options for the introduction of Eurobonds, Commission President Jose Manuel Barroso said Wednesday.

However, he cautioned that this will not bring an immediate solution for all the problems faced by the region. Moody's Investors Service Inc. Wednesday announced a one-notch downgrade of the long-term ratings of French banking giants Credit Agricole SA and Société Générale SA.

Still, the euro was steady near $1.37 versus the dollar, more than 2 cents from a 7-month low of $1.3493 set earlier this week.

There was little movement versus the yen near Y105, although the Japanese currency edged toward its record highs versus the dollar.

U.S. retail sales were unchanged in August, according to government figures released Wednesday, disappointing economists, who had generally expected a slight advance.

In addition, July's growth, which had represented the strongest performance since March, was revised lower. The U.S. Commerce Department revealed that August sales figures came in at $389.5 billion, virtually unchanged from the June figure.

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