Euro Recovers Mildly

The euro staged a modest recovery during the Asia session after a failed attempt to break back below 1.40, While Eur/Chf also climbed back, helped higher by some warnings from the SNB about the deflationary risks associated with a stronger Swiss franc, and about its willingness to act if necessary.

Greek Finance Minister Papaconstantinou implied that if Greece does not receive the next quarterly tranche of cash it will be unable to honour its financial obligations. Imagining the likely consequences, he said "the country will halt payments" adding that "wages, pensions - all the state's expenses will not be paid." Papaconstantinou also revealed that the IMF has made it "absolutely clear" that it cannot disburse the next payment without a guarantee that European funding will be made available to Greece next year. This requirement potentially introduces further delay.

Greece announced plans to privatise several state assets. It also revealed its intention to impose fresh fiscal austerity measures designed to save a further 6 bln Euros. Further details are due to be announced next week, and presented to parliament in early June.

Fitch affirmed Belgium's credit rating at AA+ but lowered the outlook to negative from stable, citing heightened political risk. The agency said Belgium would likely be downgraded if it misses official deficit targets.

S&P provided some clarification on its decision to lower the outlook on Italy's rating to negative from stable on Friday. The agency said it does not expect Italy to seek financial assistance from the EU or from the IMF "due to the absence of imbalances". S&P also acknowledged that Italian banks, unlike those in Greece, Ireland, Portugal, or Spain, have made little use of ECB liquidity.