2nd Greek bailout delayed

European officials try to keep the region's debt crisis from spreading to its bigger economies, even as disagreements delay a second bailout for Greece.
Luxembourg's finance minister Jean-Claude Juncker, left, playfully gestures toward Greek Finance Minister Evangelos Venizelos during a meeting of euro zone finance ministers at in Brussels on Monday. European officials are trying to work out a strategy to prevent the region's debt crisis from spilling over into Italy and Spain. (Virginia Mayo/Associated Press)

European officials tried to keep the region's debt crisis from spreading to its bigger economies Monday, even as disagreements delayed a second bailout for Greece.

Markets worry that the debt crisis  — so far confined to Greece, Ireland, and Portugal — could begin to affect Italy and Spain.

Trying to bail out those larger economies could easily overwhelm the euro zone's rescue capacity.

Investors are also concerned that a solution to Greece's problems has been sidelined by an intense debate over how, and how much, banks and other private investors can contribute to a new rescue package for the country.

That debate has unsettled European financial markets, most dramatically in Italy, as rating agencies warn that even if private lenders voluntarily agree to a deal, that would likely still represent a partial default of Greece on its massive debts and restrain its borrowing abilities.

Rating agency Moody's said in a note Monday that the "prospect of any form of private sector participation in debt relief is obviously negative for holders of distressed sovereign debt."

That warning follows a report last week from Standard & Poor's that said that a French proposal on a voluntary rollover of Greek debt would likely trigger a "selective default" rating.

Spanish Prime Minister Jose Luis Rodriguez Zapatero called for a "swift and precise clarification" of how a second bailout for Greece might work, to help ease the tension.

Greek market falls 2.6%

He said the meeting of finance ministers in Brussels on Monday should "contribute to that goal."

That demand was echoed by Greece's finance minister. "We need today a very strong message of stability, not only in Greece but in (the) euro zone," Evangelos Venizelos said as he arrived in Brussels.

Most of his colleagues, however, tried to play down concerns over Italy, which has moved to the center of debate over the past days, and said that there was time until September to reach a final deal on Greece.

"I have no doubt whatsoever that Italy is taking the right decisions," German Finance Minister Wolfgang Schaeuble said, referring to planned austerity measures. "All this is the normal excitement ahead of such meetings. One doesn't have to take this so seriously."

The markets were telling a different story. The yield, or interest rate, on Italian and Spanish government bonds shot up Monday, in contrast to other big economies, while the euro dropped 1.8 per cent to $1.4014 US.

The yield on Italian 10-year bonds jumped to 5.6 per cent from 5.3 per cent at the beginning of trading, following sharp rises on Thursday and Friday. Shares on the Milan stock market slipped 3.4 per cent.

Yields on Spanish 10-year bonds, meanwhile, rose to 5.9 per cent from 5.7 per cent.

Shares on the Athens Stock Exchange were down 2.6 per cent at 1,218.88, with banks again suffering from the uncertainty.

"The stock market … (is) reflecting the fact that there is no definitive solution to the Greek problem found yet, while at the same time clouds start forming over other countries' debt, such as Italy as well as obviously reflecting the news of Portugal of last week," economist Vagelis Agapitos told AP Television.

"The fact that contagion is spreading marks the failure of politicians to draw a line under the euro-crisis to date," Rabobank analyst Jane Foley said.

"As yields rise and debt financing costs become even more exaggerated, the difficulties of containing the crisis become even bigger."

To stay afloat until mid-2014, Greece needs an extra $161 billion Cdn on top of the $154 billion it was granted last year, although some of that will come from selling off government enterprises such as ports and airports.

At the same time, the Greek government on Monday named a five-member committee to head that effort, which is aimed at raising $70 billion in revenue and easing the country's $476 billion national debt.

The Finance Ministry said respected academic and former European parliament member Ioannis Koukiadis would head the committee, which must be confirmed by parliament.

Under heavy pressure from international creditors, Greece's parliament in late June approved the privatization plans and a second, major package of austerity measures worth $40 billion through 2015.

The new measures triggered anti-austerity riots in central Athens that left some 300 people injured.

Protesters have been camped outside parliament in tents for nearly seven weeks. The City of Athens on Monday called on the protesters to leave voluntarily and invited them to join talks with city officials and local businesses.

With files from The Associated Press