LONDON (AP) — Investors were cautious Thursday ahead of the unveiling of a new Greek bailout that could well confirm the country as the euro’s first debt defaulter.
Eurozone leaders have been wrangling in recent weeks over if and how to get private holders of Greek bonds to share the burden of propping up Athens. If Greece’s creditors are not fully paid back or agree to be paid back at a later date, then Greece would in all likelihood be in a so-called selective default since it means Greece is reneging on its promise to pay back its loans at a specified time.
Such a default — while it is likely to only last a matter of hours — will have real consequences: Greece’s banks won’t be able to use bonds as collateral for the loans that they need to operate while the rating lasts, and investors may ask for even higher interest rates to lend to other struggling countries, like Spain and Italy.
Along with bailed-out Portugal and Ireland, all of these countries are staggering under massive debt loads, and the more it costs them to borrow money, the faster their debt grows.
Eurozone leaders will unveil the bailout package later Thursday, and senior officials have said it will likely draw the default rating. The only question was whether it would substantially reduce Greece’s debt and thus beat a path out of the crisis.
“At a minimum, markets are looking for a framework for a comprehensive solution to the debt crisis,” said Benjamin Reitzes, an analyst with BMO Capital Markets. “Anything less … will likely hit financial markets hard.”
The euro was already in reverse ahead of the meeting, while stocks were struggling for direction.
The FTSE index of Britain’s leading shares was down 0.1 percent to 5,848. France’s CAC-40 moved up 0.1 percent to 3,758, while Germany’s DAX was flat at 7,223.
Wall Street was poised to open slightly higher. Dow futures were up 0.1 percent at 12,517, while S&P futures also up 0.1 percent to 1,323.
Later today, the U.S. markets will be looking to see if President Barack Obama and congressional leaders can ink a deal to raise the U.S. debt ceiling, the amount of debt the government can accumulate. There has been some progress in recent days, but it’s not clear what the final plan will look like. One has to be agreed by Aug. 2, or the U.S. will run out of money.
Earlier, Asian shares moved lower after China’s manufacturing contracted.
Japan’s Nikkei 225 closed up less than 0.1 percent at 10,010.3 after spending most of the day in negative territory. China’s Shanghai Composite Index lost 1 percent to 2,765.89 while Hong Kong’s Hang Seng closed down 0.1 percent at 21,987.2.
China’s stocks were hurt by a report Thursday that Chinese manufacturing activity fell to a 28-month low in July following repeated rate hikes and other measures to cool an overheated economy. HSBC Corp.’s manufacturing index fell to 47.2 from June’s 50.1 on a 100-point scale on which numbers below 50 show activity declining.
In currencies, the euro fell 0.5 percent to $1.4189.
Benchmark oil for August delivery was down 60 cents to $97.78 a barrel in electronic trading on the New York Mercantile Exchange.