Partial Greek default... to allow another loan.

In the largest partial debt default in history, 85% of private investors have agreed to take steep losses on their holdings of Greek debt. They will lose more than 70% of their investment. They accepted - in the end - that this was a better deal than allowing Greece to go bankrupt, in which case they would have lost everything. This agreement with private investors is an essential part of Greece's second "bailout". It paves the way for the EU and the IMF to sign off on a €130billion loan - called a "rescue package". Greece, which was facing bankruptcy within two weeks, can breathe again - and so can its creditors.

However, even after the latest loan, the country will still be left with debts of €250billion. The economy is in its fifth year of recession - never, in recent times, has an economy of a Western country shrunk so fast - 16% in just four years. The earliest any overly optimistic economist is predicting growth is 2014.

As expected, the markets reacted positively to the default news. The markets for want of a better term tend to "forgive" quickly. We have already seen this with other structured defaults in Russia, Brazil, Iceland etc. Why? Because all the markets care about is the future - not the past. Basically, a default means you are then a better bet than you were, to be able to pay in the future, the face value of any newly issued Govt bonds plus any interest payments - end result: they will allow you to play. It makes you wonder about our Government telling us all how hell would break loose in the markets if we burned Anglo Irish bondholders.

At the end of the day, this latest episode is yet another in a series of events designed to protect the Euro - at all costs, as well as saving the international banks from a total Greek default. The Greek problem is far from over yet...

No change in interest rates for the rest of 2009?

There will be no change in interest rates before next year, the Austrian member of the ECB Governing Council said yesterday. "While there are first signs that the pace of economic weakening is decelerating, we must remain alert. Banks know the ECB is following a policy of the steady hand, so they don't expect rapid changes in the interest rate. And I think banks more or less also share our expectations regarding the economic outlook."

The unusually clear statement from Bank of Austria Governor Ewald Nowotny backed up a similar message from ECB President Jean-Claude Trichet in more careful tones, as the ECB official said the bank was likely to keep interest rates steady for at least the rest of the year. "We are in uncharted waters, and there are still risks of a sudden emergence of unexpected financial turbulence," Mr Trichet said at a weekend conference in Madrid.

Interest rates fall again

The European Central Bank today cut interest rates by 0.75%, its biggest reduction in history. The bigger than expected move comes as euro zone inflation plummets and the euro zone economy sinks deeper into recession. The move takes the ECB's main rate to 2.5%, its lowest in nearly two and a half years, and marks the third cut in barely two months. It is estimated that the latest move, if passed on in full, would knock €128 off the monthly repayments on a 30-year €300,000 mortgage. The ECB has been forced to abandon its gradual monetary policy approach as a wide range of economic indicators in the eurozone are in freefall. The member states of the eurozone are France, Italy, Germany, Belgium, the Irish Republic, the Netherlands, Luxembourg, Spain, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.

Central banks worldwide are cutting interest rates dramatically to stave off a protracted recession. Earlier, the Bank of England reduced interest rates to 2% from 3%. Sweden's central bank cut its key interest rate by a record 1.75 percentage points to 2% on Thursday and monetary policymakers in Denmark and New Zealand also reduced the cost of borrowing.

Eurozone inflation, meanwhile, plunged to 2.1% in November and is expected to fall dramatically during next year, probably even turning negative (deflation) in some months.

ECB to cut interest rate next week?

A steep fall in eurozone inflation and a rise in the jobless rate has raised hopes that the European Central Bank (ECB) will cut rates sharply next Thursday. Analysts said the ECB could now cut rates by up to one percentage point from their current level of 3.25%.