More Setback For The Euro

ECB Executive Board member Bini-Smaghi said Greece would not receive the next loan package if it does not meet EU/IMF conditions. The Dutch finance minister said additional aid for Greece should be preceded by further reform and privatisations.

Greek opposition leader Samaras said that the party rejects Greece new austerity plan, while Greek Prime Minister Papandreou later said he agrees with some of the opposition's proposals but said broad political consensus is a national imperative.

The German IFO numbers signal that growth has peaked, despite the unchanged headline number. Expectations continue to decline, whereas this was offset by yet another improvement in current conditions. The details of German GDP were not so encouraging, especially following yesterday's weak PMI data. If core numbers from Germany start to disappoint, the euro could suffer some further downside.

Moody's said that Italy and Belgium were also likely to come under pressure if Greece defaults while Portugal and Ireland would be at risk of a multi-notch downgrade. The agency said Spain is not in the same category but would likely still face significant market pressure.

ECB Governing Council member Noyer said Greece has no alternative to implementing the EU-IMF programme "completely and entirely," and must use privatization to cut debt. ECB Executive Board member Stark says all euro creditors are `justified' in expecting their money back.