There was huge news coming out of the Euro Zone on Friday. Merkel and Sarkozy appeared together in a press conference saying they were working together on the Greek sovereign debt crisis and they both believe that the Greek debt situation needs to be resolved sooner rather than later. The main sticking point for German agreement was participation of private bond holders. Germany believes private bond holders should be required to rollover their bonds to longer maturities in order to help keep Greek yields down but France, the European Commission and the European Central Bank all opposed this idea. The agreement has been made to allow private bond holders such as pension funds and insurance firms to voluntarily buy more Greek bonds when their Greek bonds mature. This tactic is to avoid rating agencies such as S&P classifying the action as a default.
Greek bailout number 2 is also on the table. We have been discussing this possible bailout for weeks now and it has seemed like a sure thing. There was a rumor floating around on Friday that the second Greek bailout that was previously being discussed as an additional 90B Euro loan would be increased to 150B Euros. The first Greek bailout which Greece is still receiving payments from was finalized at 110B Euros. This would make a total of 260B Euros in loans to Greece as the Greek economy slips farther into recession. The recession shows no signs of stopping as Greek workers choose to strike and protest the strict austerity measures forced upon them rather than working and producing.
The Greek prime minister Papandreou changed up members of his cabinet on Friday including placing his former defense minister has the new finance minister. The changing of the cabinet is all in an effort to have a cabinet that will support strict new economic austerity measures that the IMF, Eurogroup and European Central Bank have requested in order to continue supplying money to the nearly bankrupt country. The Greek parliament will hold a vote of confidence on the new cabinet, Tuesday.
The Euro Zone finance ministers will meet Sunday at 1300 EDT to discuss the condition of Greece including the next installment of the original bailout and the fate of a future bailout. Some suggest there will be no decision until early July. The EU economic and monetary affairs commissioner, Olli Rehn, said the decision on the next installment from the original bailout will be decided on Sunday while the agreement on the new bailout will be completed July 11th. Meanwhile Greek bond yields and CDS have fallen substantially.