“We have found a solution,” said French President Sarkozy in reference to an agreement with German leader Merkel that will push for a voluntary debt rollover by existing Greek bondholders. Merkel backed off on the debt extension stance of her Finance Minister and said she wants to work with the ECB as the Germans still want “to have a participation of private creditors on a voluntary basis.” While there is a Kum Ba Yah feeling in the euro region as Greek 2 yr yields are falling more than 200 bps on the Merkel/Sarkozy comments, it remains to be seen what enticements will have to be made to private bond holders to encourage them to stick with their Greek exposure when their current holdings mature. Will they have to sign a pledge guaranteeing to buy more? What will the interest rates be that they will collect? Will the debt be secured or guaranteed by the EU? Either way, time will be bought and at this point, its not more time for Greece as they have no way of paying back this money, it’s time given to the European banking system to improve its capital ratios’s and time given to Spain to continue its budget cutting and deleveraging.
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