European Confidence Slides on Renewed Greek Default Concern

European economic confidence dropped in June to 105.1, the lowest in eight months, from 105.5 in May as the renewed Greek debt crisis lowered confidence in the 17-nation using the common currency.

Following the news, the euro lowered its gains as it fell from a high of 1.4417 versus the dollar to trade at 1.4386.

Industrial confidence slipped to 3.2 from the revise 3.8 and business climate indicator slumped to 0.92 from the revised 0.98.  

Growth expansion is showing an ease in the second quarter as Purchasing Manager Index (PMI) manufacturing retreated to 52.0 from 54.6 in May while services slipped to 54.2 from 56.0. Accordingly PMI composite fell to 53.6 from 55.8.

Yet, German business confidence unexpectedly inclined in June, after lingering in May, where business climate indicator rose to 114.5 from 114.2, beating expectations of 113.4, current assessment gauge surged to 123.3 from the prior 121.4, while expectations gauge dropped to 106.3 from 107.4.

Other gauges of today report showed that consumer confidence was revised to -9.8 from the prior -10.0 and services confidence rose to 9.9 from the revised 9.3

Today, the spot light will be on Greece as the Parliament is set to vote for the new austerity measures which are considered a focal point for the future of Greece and the euro zone as the rejection may provoke a Greek default.    

Votes on Thursday will tackle details of the plan such as tax increase and the sale of state assets. Therefore, the whole matter is expected to be finalized tomorrow.

Last week, European leaders pledged to help Greece if Papandreou passed the new measures. Thus, in the case of failure, Greece will not receive the fifth tranche of last year's 110-billion-euro aid package, referring that it has to repay 6.6 billion euros of maturing bonds in August. On the other hand, the approval would perhaps make the fifth installment available on July 5 if European finance ministers agreed on it when they meet in Brussels on Sunday.   

Hence, it seems that there is no alternative plan as Oli Rehn said "There is no Plan B to avoid default," referring to the importance of the approval of the Greek five-year austerity plan.   

A light beam came with the French proposal that still needs agreement from the EU. German officials showed their pleasure regarding Sarkozy's plan which includes the involvement of private sector investors in Greek debt through reinvesting half of the yields of maturing Greek bonds in new 30-year debt where they will get 5.5 percent interest in addition to a bonus linked to Greece's GDP growth rate in return.

The rest of the plan includes that 30 percent would be cashed out while 20 percent would be invested in zero-coupon AAA securities with deferred interest that will probably be backed by the euro zone rescue fund to stimulate banks.

Yet, the question remains whether the French proposal can save Greece in the case of rejecting the new unpopular austerity measures in the Parliament today.