Jean-Claude Juncker, Luxembourg prime minister and Eurogroup chair, called yesterday (17 May) for a "soft restructuring" of Greece's debt provided that the country would put in practice deep reforms and a privatisation "exceeding the imagination".
Greek bonds rose after Luxembourg Prime Minister Jean-Claude Juncker said the Mediterranean nation's debt could be ‘reprofiled' as part of an aid plan, damping concern that bondholders will be forced to take losses.
Portuguese ten-year bonds gained after the decision by European finance chiefs to endorse a €78 billion (Dh406.7 billion) bailout for the Iberian nation. Europe would consider "reprofiling" Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Juncker said.
German bonds fell even as a report showed investor confidence in Europe's largest economy declined this month.
"The impact has been mildly positive," said Peter Schaffrik, head of European fixed-income strategy at RBC Capital Markets in London. "The spreads have been trading well-behaved. The market is well-supported."
Greek two-year yields fell 42 basis points to 24.49 per cent. The 4.6 per cent security due in May 2013 gained 0.495, or €4.95 per 1,000-euro face amount, to 71.19. Ten-year yields declined four basis points to 15.57 per cent.
European governments have thus far ruled out shifting some costs to private bondholders and have instead relied on taxpayer-funded bailouts to stamp out the region's sovereign debt crisis. A "large restructuring" remains taboo, Juncker said. French Finance Minister Christine Lagarde told reporters in Brussels yesterday that a restructuring or reprofiling of Greece's debt is "off the table.
In more general terms, Juncker said that the enlargement and the euro were the EU's most important projects, without which the continent and the Union would have been much more vulnerable.
"We did two things of which I'm proud," he insisted. Thanks to EU enlargement East European countries, many of which were "predestined to oppose each other," had been locked in to safety, Juncker said.
Regarding the euro, he cited figures according to which the common currency had brought down inflation to low levels never attained by the Deutsche Mark. Without the euro, the Nordic currencies would be under-evaluated and vice versa, auguring "pernicious" developments, he argued.
Juncker also spoke out in favour of stronger economic governance and introducing "a minimum of European social rights". Europe is not a government, but the Union's rules make up for the absence of an EU government, he said. Regarding the absence of a social dimension to EU policies, which he lamented, he said he was not calling for equal salaries, but for "a minimum level of rules" in the social area.
Without naming any specific country, Juncker lamented the recent border row between France and Italy and Denmark's plan to reinstate "visible" border controls.
"I'm really upset to see that now, without any debate, and without taking into consideration the points of view of others, countries are reinstating border controls," he said.
Juncker regretted that "national concerns" had become predominant lately in EU affairs.
"If you have the choice between the national and the European avenue, even when in doubt, you should choose the European avenue, because national avenues lead nowhere.
Portuguese ten-year yields fell four basis points to 8.93 per cent after the country become the third member of the 17- nation currency bloc after Greece and Ireland to receive emergency loans from the European Union and the International Monetary Fund. The decision by European finance chiefs to provide assistance to Portugal brought to €256 billion the aid provided to stamp out the Europe's sovereign debt crisis.
German investor confidence declined for a third month in May as faster inflation threatened to curb consumer spending and Europe's sovereign debt crisis worsened. The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to 3.1 from 7.6 in April.
Economists expected a drop to 4.5, according to the median of 31 estimates in a Bloomberg News survey.
The ECB left its benchmark rate unchanged at 1.25 per cent on May 5 though President Jean-Claude Trichet said policymakers continue to see "upward pressure" on inflation.
German two-year note yields were four basis points higher at 1.84 per cent, while ten-year yields climbed three basis points to 3.15 per cent.
German bonds have handed investors a 0.8 per cent loss this year, compared with a 2.1 per cent return for Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.