More states are realizing that the road to fiscal hell is paved with progressive intentions

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

Divided Nation

“But he, knowing their thoughts, said unto them, Every kingdom•Strongs 932: basileia, bas-il-i´-ah; from 935; properly, royalty, i.e. (abstractly) rule, or (concretely) a realm (literally or figuratively): — kingdom, + reign. divided•Strongs 1266: diamerizo, dee-am-er-id´-zo; from 1223 and 3307; to partition thoroughly (literally in distribution, figuratively in dissension): — cloven, divide, part. against itself is brought to desolation•Strongs 2049: eremoo, er-ay-mo´-o; from 2048; to lay waste (literally or figuratively): — (bring to, make) desolate(-ion), come to nought.; and a house divided against a house falleth.”
—Luke11:17

“Ah sinful nation, a people laden with iniquity, a seed of evildoers, children that are corrupters: they have forsaken the LORD, they have provoked the Holy One of Israel unto anger, they are gone away backward.”
—Isaiah 1:4

In his January 2011 inaugural address, California Gov. Jerry Brown declared it a “time to honestly assess our financial condition and make the tough choices.” Plainly the choices weren’t tough enough: Mr. Brown has just announced that he faces a state budget deficit of $16 billion—nearly twice the $9.2 billion he predicted in January. In Sacramento Monday, he coupled a new round of spending cuts with a call for some hefty new tax hikes.

In his own inaugural address back in January 2010, New Jersey Gov. Chris Christie also spoke of making tough choices for the people of his state. For his first full budget, Mr. Christie faced a deficit of $10.7 billion—one-third of projected revenues. Not only did Mr. Christie close that deficit without raising taxes, he is now plumping for a 10% across-the-board tax cut.

It’s not just looks that make Mr. Brown Laurel to Mr. Christie’s Hardy. It’s also their political choices.

When the Obama administration’s Transportation Department called on California to cough up billions for a high-speed bullet train or lose federal dollars, Mr. Brown went along. In sharp contrast, when the feds delivered a similar ultimatum to Mr. Christie over a proposed commuter rail tunnel between New York and New Jersey, he nixed the project, saying his state just couldn’t afford it.

On the “millionaire’s” tax, Mr. Brown says that California desperately needs to approve one if the state is to recover. The one on California’s November ballot kicks in at income of $250,000 and would raise the top rate to 13.3% from 10.3% on incomes above $1 million. Again in sharp contrast, when New Jersey Democrats attempted to embarrass Mr. Christie by sending a millionaire’s tax to his desk, he called their bluff and promptly vetoed it.

On public-employee unions, Mr. Brown can talk a good game—at Monday’s press conference, he announced a 5% pay cut for state workers, and he has proposed pension reform. Yet for all his pull with unions (the last time he was governor, he gave California’s public-sector unions collective-bargaining rights), Gov. Brown, a Democrat, has not been able to accomplish what Republican Gov. Christie has: persuade a Democratic legislature to require government workers to kick in more for their health care and pensions.

Now, no one will confuse New Jersey with free-market Hong Kong. Still, because the challenges facing the Golden and Garden States are so similar, the different paths taken by their respective governors are all the more striking. And these two men are by no means alone.

Our states today are conducting a profound and contentious rethink about the right level of taxes, spending and government. Most obvious is the battle for Wisconsin. There Republican Gov. Scott Walker finds himself pitted against public-sector unions that successfully forced a recall election for June 5 after the legislature adopted the governor’s package of labor reforms last spring.

Amid the turmoil—Democratic legislators fled the state to prevent a vote, while union-backed protesters occupied the Capitol—Mr. Walker looked weakened. Now he has taken the lead in polls. More than that, voters have taken the lesson: A recent Marquette University Law School poll showed only 12% of Wisconsin voters listing “restoring collective bargaining rights for public employees” as their priority.

Indeed, the American Midwest today is home to some of the biggest experiments in government. Republicans now hold both the governorships and the legislatures in Michigan, Indiana and Ohio, and in Wisconsin they control all but the Senate. In each they are pushing for smaller, more accountable government. The outlier is Illinois, where Democratic Gov. Pat Quinn and his Democratic legislature pushed through a tax increase on their heavily indebted state.

Now ask yourself this. Can anyone look at Illinois and say to himself: I have seen the future and it works?

Indiana’s Mitch Daniels, a Republican, is probably the only governor who can truly claim to have turned around a failing state. That may change if we get eight years of Mr. Christie in New Jersey. Louisiana’s Bobby Jindal, also a Republican, may be another challenger for the title, having just succeeded in pushing through arguably the most far-reaching reform of any state public-school system in America.

Hard economic times bring their own lessons. Though few have been spared the ravages of the last recession and the sluggish recovery, those in states where taxes are light, government lives within its means, and the climate is friendly to investment have learned the value of the arrangement they have. They are not likely to give it up.

Meanwhile, leaders in some struggling states have taken notice. They know the road to fiscal hell is paved with progressive intentions. The question regarding the sensible ones is whether they have the will and wherewithal to impose the reforms they know their states need on the interest groups whose political and economic clout is so closely tied with the public purse.

Mr. Brown’s remarks Monday suggest the answer to this question is no.

The European Central Bank has stopped providing liquidity to some Greek banks as they have not been successfully recapitalized, the ECB said on Wednesday, confirming news earlier reported exclusively by Reuters

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

Root of All Evil

“For the love of money is the root •Strongs 4491: rhiza, hrid´-zah; apparently a primary word; a “root” (literally or figuratively):—root of all.of all evil•Strongs 2556: kakos, kak-os´; apparently a primary word; worthless (intrinsically, such; whereas 4190 properly refers to effects), i.e. (subjectively) depraved, or (objectively) injurious:—bad, evil, harm, ill, noisome, wicked. which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows•Strongs 3601: odune, od-oo´-nay; from 1416; grief (as dejecting): — sorrow..”
—1 Timothy 6:10

The news sent the euro lower against the dollar, fanning concerns among investors and in Greece that the country may have to leave the euro zone.

The development highlights the weak state of the banking sector in Greece, where Greeks are pulling euros out of the banks in fear that their country may exit the European single currency despite the declared determination of EU powers Germany and France to keep Athens in the monetary union.

“As recapitalization wasn’t in place, the ECB stopped monetary policy operations,” a euro zone central bank source told Reuters, declining to be identified. “They are now in the ELA of the Greek central bank.”

The ECB only conducts its refinancing operations with solvent banks. Banks which fail to meet strict ECB rules but are deemed solvent by the national central bank (NCB) concerned can nonetheless go to their NCB for emergency liquidity assistance (ELA).

The sources did not name the banks concerned.

An ECB official later added: “Pending the recapitalization of Greek banks that are severely undercapitalized as a result of the recent PSI (debt restructuring) operation, some of the Greek banks have been moved to Emergency Liquidity Assistance.”

“Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations,” the official added. “The ECB/Eurosystem (of euro zone central banks) continues to support Greek banks.”

It was unclear exactly how many lenders were affected but the development marked a increase in the number of Greek banks depending on emergency borrowing from the Bank of Greece.

One person familiar with the matter said four Greek banks’ capital was so depleted they were operating with negative equity capital. According to its own rules, the ECB cannot provide liquidity to banks in such a situation.

ECB policymaker Luc Coene told the Financial Times in an interview released earlier this week Greek banks on ELA were still solvent.

Greece’s cabinet on April 27 agreed a state bank support fund (HFSF) would provide the country’s four big banks with 18 billion euros worth of European bonds as an interim solution until they are recapitalized later in the year.

The fund will allocate the 18 billion euros by next week to the country’s four biggest lenders as an interim recapitalization, its chief said on Wednesday.

“Procedures to allocate the funds should be concluded by next week,” the head of the Hellenic Financial Stability Fund (HFSF), Panagiotis Thomopoulos, told Reuters.

Athens is working with EU/IMF officials on technical aspects of a recapitalization plan for its banks, likely to be unveiled after the national election.

About 50 billion euros ($66 billion) have been earmarked in Greece’s second bailout to prop up its struggling banking sector.

ECB President Mario Draghi said earlier the central bank wanted Greece to remain in the currency bloc.

“I want to state that our strong preference is that Greece will continue to stay in the euro zone,” he said in a speech, adding: “Since the treaty does not foresee anything on exit (from euro), this is not a matter for the ECB to decide.”

(Reporting by Annika Breidthardt and Andreas Framke; Writing by Paul Carrel; Editing by Noah Barkin/Jeremy Gaunt)

Electric Grid Is Vulnerable to a Big Solar Blow; Officials Spar Over What to Do

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“And there shall be signs•Strongs 4592: semeion, say-mi´-on; neuter of a presumed derivative of the base of 4591; an indication, especially ceremonially or supernaturally: — miracle, sign, token, wonder. in the sun, and in the moon, and in the stars; and upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed the sea and the waves roaring;”
—Luke 21:25

With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions—including new equipment standards and retrofits—while keeping a lid on the cost.

They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it.

Among the events they are examining is the Canadian power outage of 1989. On March 13 of that year, five major electricity-transmission lines in Quebec went on the fritz. Less than two minutes later, much of the province was in the dark. The cause: A storm of charged particles from the sun had showered Earth, damaging electrical gear as far away as New Jersey and bringing displays of the aurora borealis, or northern lights, as far south as Texas and Florida.

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By RYAN TRACY

Reuters
U.S. electricity regulators are studying the impact of historic sunstorms. Pictured, a NASA handout image of the sun.

With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions—including new equipment standards and retrofits—while keeping a lid on the cost.

They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it.

Among the events they are examining is the Canadian power outage of 1989. On March 13 of that year, five major electricity-transmission lines in Quebec went on the fritz. Less than two minutes later, much of the province was in the dark. The cause: A storm of charged particles from the sun had showered Earth, damaging electrical gear as far away as New Jersey and bringing displays of the aurora borealis, or northern lights, as far south as Texas and Florida.

The sun is expected to hit a peak eruption period in 2013, and while superstorms don’t always occur in peak periods, some warn of a disaster. John Kappenman, a consultant and former power engineer who has spent decades researching the storms, says the modern power grid isn’t hardened for the worst nature has to offer. He says an extreme storm could cause blackouts lasting weeks or months, leaving major cities temporarily uninhabitable and taking a massive economic toll.

“This is arguably the largest natural-disaster scenario that the nation could face,” said Mr. Kappenman.

Mr. Kappenman has consulted for companies that make equipment to harden the grid.

Others are more cautious in their predictions. “We need to carry out more detailed and more rigorous analysis before we know for sure,” said Antti Pulkkinen, a physicist with the National Aeronautics and Space Administration, who is using supercomputers to build models of potential future solar storms based on data that have accumulated for decades.

Most in the industry say that they don’t think the consequences would be so severe but that a lesser event is conceivable and worth preparing for.

In February, North American Electric Reliability Corp., a government-chartered entity that enforces national standards for the grid, said the likeliest consequence of a strong geomagnetic storm would be blackouts in the affected areas. The storms tend to have a greater impact in northern latitudes, in part because of the nature of Earth’s magnetic field. The report said most transformers would stay online, so a blackout would likely last only hours or days.

Officials of American Electric Power Co., AEP -1.66% the largest operator of transmission lines in the U.S., and Exelon Corp., EXC -0.85% one of the nation’s largest power generators, have told regulators they are collecting data on what happens during solar storms to assess weak points. “We tend to know what is vulnerable, and we are acting on it,” said Michael Heyeck, AEP’s senior vice president for transmission.

In a solar storm, charged particles flare from the sun and hurtle into space. When they collide with Earth, the electricity-transmission system acts like a jumbo antenna, picking up currents created when the particles interact with the planet’s magnetic field. Those currents can cause wild voltage fluctuations, overheating and permanent damage to transformers, which zip electricity around the grid. The transformers weigh hundreds of tons each and aren’t easily repaired or replaced.

Regulators have known about the threat of sunstorms for years but have only recently begun to coordinate disparate efforts to study the problem and formulate a response. Sunstorms can also force airlines to reroute flights and can disrupt the operation of commercial satellites and interfere with or damage their power and navigation systems. Military and spy satellites typically are less vulnerable.

The 1989 Quebec storm didn’t cause widespread transformer damage and the outage ended after nine hours. But the two biggest solar storms in recorded history took place in 1859 and 1921, before the development of the modern electricity grid.

Over several days in August and September 1859, observations of the northern lights were reported as far south as Panama and Cuba, according to historical accounts cited in a 2008 report from the National Academy of Sciences. One article from the time in the Rocky Mountain News said a group of campers in the mountains saw a light so bright that “some of the party insisted it was daylight and began the preparation of breakfast,” even though it was just after midnight.

The 1921 storm, which took place in May, produced similarly large displays and caused widespread problems in the national telegraph system, disrupting service from the Atlantic coast to the Mississippi River. By Mr. Kappenman’s reckoning, those events were as much as 10 times as powerful as the 1989 storm.

The Federal Energy Regulatory Commission, which oversees the grid, has begun to look into possible new rules. Chairman Jon Wellinghoff said the four-member commission might require upgrades if it found “the threat was high and the cost was low.” Regulators could require the industry to install blocking devices on transformers, for example, or raise the construction standards for high-voltage gear. Or they might take less intrusive action, like ordering more monitoring devices and additional threat assessment. An April 30 conference organized by the commission saw vigorous debate on how quickly the grid needs upgrading.

“We already know that the danger to society is great enough to warrant taking immediate action,” said Peter Vincent Pry, executive director of the Task Force on National and Homeland Security, a group that members of Congress designated to track electrical-grid risks and that supports Mr. Kappenman’s conclusions. By Mr. Pry’s math, it would cost about $200 million to install blocking devices on existing transformers that serve the 100 largest U.S. cities.

Others disagree. Frank Koza of PJM Interconnection, which coordinates electricity transmission in 13 states, said the cost could rise to hundreds of millions of dollars if transformers had to be replaced. But at the moment, he said, “no one can provide sufficient evidence that an immediate large-scale investment by the assets owner and government would adequately address the risk.”

Mr. Heyeck of American Electric Power said customers will want that evidence before seeing their electricity bills rise.

“We’ve got to recognize that someone out there is paying for all this,” he said.

There is no legal provision in European Union treaties for a country to exit the euro zone, putting experts in uncharted waters when trying to assess method and the repercussions. But if Greece were forced to leave after losing financial support, it would show that Europe’s historic currency project can disintegrate as well as integrate. Here are some possible answers.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

How does Greece leave the euro?

In one scenario, a Greek authority would have to agree on a date with the rest of the euro zone for its departure and for the introduction of a new currency (let’s call it the new drachma). It would say that from that date, all public salaries, contracts and pensions would be paid in drachma. Bank deposits would also be redenominated. The authority would likely decide an initial conversion rate on domestic contracts from euros to new drachma—say one-to-one—then it would likely let the exchange rate of the new drachma be decided by the currency market. This would likely result in a sharp devaluation. If Greeks anticipate that, there is a risk of increased bank withdrawals and capital flight. This could trigger capital controls, making an orderly exit unlikely.

Could the drachma ever recover?

Ultimately, it would find a level that made Greek products and services internationally attractive again. What would happen then would depend on how policy makers, the Greek central banks and Greeks themselves reacted to the devaluation, because the competitive benefits of devaluation could be easily inflated away. The two most recent parallels, Argentina and Russia, saw their currencies fall by between 60%-70% after bankruptcy forced them to abandon their currency pegs. But comparisons are difficult. There is no obvious equivalent for Greece to the upturn in oil and commodity prices in 2001 that helped those two countries recover.

What would the ECB do?

The ECB probably would no longer be able to lend to banks against Greek government debt as collateral. That would mean the supply of liquidity to the Greek financial system would stop. With no euros available, this would be the moment when the government would have to distribute another currency as a means of exchange.

Would the euro still circulate in Greece?

Almost certainly. Euros will be in high demand as a store of value until the population has a clear idea of the new drachma’s real value. Greece might even want to keep the euro as official legal tender, as in Montenegro. But banks wouldn’t have the right to borrow euros from the ECB, and Greece would of course lose its valued seat on the ECB’s governing council.

What would happen to the debt?

The debt would largely fall into two categories: money that the government owes to its bondholders and official creditors, and money that the banking system owes to the ECB. As both of these types of debts are under international law, they would have to be restructured by negotiation. Domestic debt would likely be redenominated in new drachmas.

What could a Greek exit cost?

It is very difficult to calculate the cost of a country leaving an interconnected currency union. The Institute of International Finance, an industry group representing some 450 financial institutions from around the world, circulated a confidential note in February placing the costs at €1 trillion ($1.29 trillion). The IIF said, in an internal note to staff that was leaked to the press at the time, that different players would be injured significantly by a Greek euro exit, ranging from the ECB to private financial institutions and other euro-zone countries, which would face higher borrowing costs as the contagion would hit their bond markets.

How are Greek businesses affected?

Businesses, unable to raise funding and facing large-scale disruption in their payment flows, would potentially face closures on a large scale. As soon as the possibility of a Greek exit became clear, there would be a risk of a bank run in the country and a denial of further funding to entities, private or public, through instruments and contracts under Greek law. Holders of existing euro-denominated contracts under Greek law would want to avoid their conversion into the new drachma and the subsequent sharp depreciation of the currency, says Citigroup C -1.21% .

What about Greek banks?

This is where it gets really complicated. At present, the banks are technically insolvent, because they had to realize heavy losses on the bond exchange earlier this year. Under the bailout package, they are supposed to receive new capital, but it hasn’t been paid in yet. Meanwhile, the creditors have set aside €35 billion ($45 billion) in what’s called “collateral enhancement,” a sort of protection which allows the ECB to pretend that it isn’t really lending to insolvent banks. That is what allows Greek banks to keep borrowing euros from the ECB. If a new Greek government were to leave the monetary union before the recapitalization process were completed, then things could get very messy indeed. The ECB could end up with up to €160 billion in defaulted loans and bonds on its hands.

What about Portugal and Ireland?

Portugal and Ireland are—like Greece—recipients of financial assistance from euro-zone countries and the International Monetary Fund. A Greek exit from the euro zone would exert more pressure on these two countries. Portugal and Ireland are already expected to get fresh financial assistance of some form. Guntram Wolff, of Brussels think-tank Bruegel, believes that, should Greece exit the euro, the market will turn its attention to these two vulnerable countries.

—Geoffrey T. Smith, Matina Stevis and Stelios Bouras

ATHENS—Greece is heading to new elections after party leaders failed to reach an agreement to form a coalition, promising to leave the country in a weekslong political limbo that could threaten its future in the euro zone.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

“Then certain philosophers of the Epicureans•Strongs #: Epikoureios, ep-ee-koo´-ri-os; from ∆Epi÷kouroß Epikouros (compare 1947) (a noted philosopher); an Epicurean or follower of Epicurus: — Epicurean., and of the Stoicks•Strongs #: Stoikos, sto-ik-os´; from 4745; a “Stoic” (as occupying a particular porch in Athens), i.e. adherent of a certin philosophy: — Stoick., encountered him. And some said, What will this babbler say? other some, He seemeth to be a setter forth of strange gods: because he preached unto them Jesus, and the resurrection.—Acts 17:18

Greece’s party leaders failed Tuesday to reach a consensus on forming a government, they said. The leaders were set to meet again Wednesday to appoint a caretaker government that will lead the country to elections, President Karolos Papoulias said in a statement. New elections are most likely to take place June 17.

Mr. Papoulias had positioned Tuesday’s meetings with the heads of Greece’s four largest political parties—conservatives New Democracy, socialists Pasok, leftists Syriza and nationalists Independent Greeks—as well as the smaller Democratic Left party, as a last-ditch effort to form a technocratic government that could ensure the cash-strapped country wouldn’t be cut off from the international aid it needs to stay afloat.

The lack of such a government could render Athens unable to collect the additional international aid it needs to meet its obligations until fresh elections are held and a new government is formed.

Greece’s May 6 elections left the country’s fractured parties at odds over whether to continue to pursue the painful austerity agenda demanded by its European partners in exchange for the €130 billion ($166 billion) bailout that was agreed in March and is designed to keep the country afloat and inside the euro zone. The vote left mainstream parties without a majority and gave a large portion of Parliament to parties who say Greece shouldn’t continue with the painful and unpopular budget cuts.

“The country is heading to fresh polls after just a few days in very bad conditions, just because some have set outright their own instant partisan interest above the national interest,” Pasok leader Evangelos Venizelos said after the cross-party meeting ended.

Conservative New Democracy party leader Antonis Samaras said the country’s future is under threat following the collapse of the talks.

Minutes later, Alexis Tsipras, the leader of Syriza, which campaigned on an anti-austerity platform and firmly resisted backing a coalition government with the two mainstream parties, said he won’t betray voters who gave the grouping a surprise second-place finish in the country’s polls.

“It is now time to complete this step…to form a leftist government that will be boosted by the Greek people and in Parliament in order to put a final end to the policies destroying the country,” he said.

Syriza saw its support triple from the last election held in 2009. The party has extended its gains according to recent opinion polls and is now the most popular party. New Democracy and Pasok—the two previously mainstream parties that backed the country’s former coalition government—have seen more erosion of their support.

As prospects for a coalition government dimmed in recent days, markets were gripped by fears that Greece would exit the euro zone, possibly sparking ripple effects for the currency bloc’s weaker economies.

Inside Greece, depositors withdrew €700 million from local banks on Monday, President Papoulias said in remarks to political leaders, according to a transcript released Tuesday. In the past two years, deposit outflows have generally averaged between €2 billion and €3 billion per month, though in January they topped the €5 billion mark.

Citing a conversation he had with Greek Central Bank Governor George Provopoulos, Mr. Papoulias said “that the strength of banks is very weak right now.”

The growing risk is that Greece will be forced to print drachma to pay for government services or that Greece’s already weakened banks will run out of cash if worried citizens continue to pull out their savings.

European stocks, in particular those of banks, and the euro currency dropped Tuesday, while Italian and Spanish bond prices fell after efforts to form a coalition government in Greece stumbled.

The 10-year Italian bond yield climbed 0.16 percentage points higher at 6.01%, above the 6% level that in the past hastened a slide in riskier euro-zone debt. The corresponding Spanish bond yield finished 0.13 percentage point higher at 6.32%. German bonds, which were down for most of the session, traded flat, with the 10-year yield unchanged at 1.46% but near a record low of 1.435%.

“All eyes are firmly on Greece, and the political uncertainty will continue to weigh on sentiment,” said Eric Wand, a strategist at Lloyds Bank WBM.

The latest drop came after investors battered European stocks and dumped bonds of Spain and Italy on Monday, dealing a blow to hopes that the damage of a Greek exit would be contained.

The consequences of Greece’s exit from the euro zone would be difficult to assess, International Monetary Fund Managing Director Christine Lagarde said Tuesday. But she added the situation could easily degenerate into turmoil. “We can certainly assume that it would be quite messy,” she said.

If party leaders can’t agree on a caretaker government during Wednesday’s meeting, Mr. Papoulias must appoint a top judge to lead the country to elections.

A Pasok official said the head of the Council of State, Panagiotis Pikrammenos, is likely to be named as caretaker prime minister.

Recent polls suggest a new election could deliver an equally fragmented Parliament. But the next time around, Greece won’t have the luxury of prolonged cross-party negotiations. By the end of June, the country must detail and approve fresh measures to bridge a budget gap of €11.5 billion in coming years as its economy, mired by five years of recession, continues to shrink.

Greece’s international lenders have warned that they won’t discuss further aid disbursements until a new government is formed.

Officials from the outgoing government have warned that the country’s coffers could run dry by then while the economy could further deteriorate. Fresh data Tuesday confirmed the country remains mired in deep recession even before new austerity plans are due to be implemented in the months ahead.

Greece’s gross domestic product contracted by an annual rate of 6.2% in the first quarter of 2012 compared with a year earlier, the country’s statistics office said Tuesday. This follows a year-on-year decline in economic output of 7.5% in the previous quarter.

The relatively slower pace of decline reflected, in part, a boost to business and consumer confidence following a massive debt restructuring and promises of new aid from its European partners and the International Monetary Fund.

Still, many forecasters say the economy shows no signs of recovery with some estimating a decline of 7% or more this year, much worse than a 4.7% contraction projected under Greece’s bailout program, meaning that Greece’s budget gap could widen further as a percentage of GDP.

European officials have piled pressure on Greece in recent days to stand by its fiscal commitments agreed as part of the program or face leaving the euro zone.

German Finance Minister Wolfgang Schäuble said Tuesday that the terms of Greece’s bailout weren’t open to renegotiation.

“We were all of the opinion fully shared that what has been agreed with Greece is valid,” he told reporters following a meeting of European Union finance ministers in Brussels.

Speaking after the same meeting, Swedish Finance Minister Anders Borg said Greece was reaching a point of no return and must “seriously consider” its euro-zone membership.

“We are very close to the end of the road,” Mr. Borg told reporters in Brussels. “The situation is very serious.”

—Nektaria Stamouli in Athens, Vanessa Mock in Brussels
and Neelabh Chaturvedi
in London
contributed to this article.

Attempts to form a new government in Athens have been thwarted for the past nine days, although the country’s president will meet all major parties this afternoon to discuss the forming of a “technocratic” administration rather than a coalition.
An outgoing Greek minister warned that the country could descend into “civil war” amid the chaos of a euro exit. “If Greece cannot meet its obligations and serve its debt the pain will be great,” Michalis Chrysohoidis was quoted as telling a local radio station. “What will prevail are armed gangs with Kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.”
New elections may be held next month and Greek voters are likely to be warned by European leaders that their country may be ejected from the euro if they do not support parties backing austerity measures.
George Osborne, the Chancellor, travelled to Brussels yesterday to take part in meetings with other European finance ministers about the worsening crisis.

Suspected drug cartel killers in Mexico dumped 49 headless bodies on a highway near the northern city of Monterrey, a sickening atrocity that prompted the government to condemn the “inhuman” violence plaguing the country.

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Days of Noah

“But as the days of Noe were, so shall also the coming of the Son of man be.”
—Matthew 24:37

“And God said unto Noah, The end of all flesh is come before me; for the earth is filled with violence•Strongs 2555: chamacç, khaw-mawce´; from 2554; violence; by implication, wrong; by meton. unjust gain:—cruel(-ty), damage, false, injustice, x oppressor, unrighteous, violence (against, done), violent (dealing), wrong
•Strongs 2554: chamacç, khaw-mas´; a primitive root; to be violent; by implication, to maltreat:—make bare, shake off, violate, do violence, take away violently, wrong, imagine wrongfully. through them; and, behold, I will destroy them with the earth.”
— Genesis 6:13

The corpses of 43 men and six women, whose hands and feet had also been cut off, were found in a pile on a highway in the municipality of Cadereyta Jimenez early on Sunday, officials from the state of Nuevo Leon said.

The Nuevo Leon government said the notorious Zetas drug gang had claimed responsibility for the bloodbath, one of the worst to hit Mexico during its struggle against the powerful cartels.

The massacre follows several other mass slayings in Mexico. Many have occurred in the north, where the Zetas have waged a war against rival groups for control of smuggling routes into the United States, the biggest market for illicit drugs.

The Mexican government said in a statement the evidence suggested turf wars between the Zetas and the Sinaloa cartel of Joaquin “Shorty” Guzman were behind the surge in bloodshed.

Condemning the “inhuman episodes of irrational violence” the warring gangs had caused, the government pledged to uphold justice in Mexico with “all of its force and might.”

The Zetas gang was founded by deserters from the Mexican army who became enforcers for the Gulf cartel, which once dominated the drug trade in northeastern Mexico. Leaders of the Zetas later split from their employers and the two gangs have since fought for control of trafficking routes.

The Zetas have also been at war with the Sinaloa cartel headed by Guzman, the country’s most wanted man.

President Felipe Calderon has staked his reputation on bringing Mexico’s drug gangs to heel, sending in the army to fight them shortly after taking power in December 2006.

But the violence has spiraled since, and more than 50,000 people have fallen victim to the conflict, eroding support for Calderon’s conservative National Action Party (PAN), which looks likely to lose power in presidential elections on July 1.

A poll published on Sunday showed PAN presidential candidate Josefina Vazquez Mota trailing front-runner Enrique Pena Nieto of the opposition Institutional Revolutionary Party (PRI) by 19 points with just seven weeks to go.

The commercial hub of Monterrey was long a bastion of the PAN, and the local business community has been “livid” about the violence engulfing the city, said George W. Grayson, a Mexico expert at the College of William and Mary in Virginia.

“This puts the final nail in the coffin of the PAN in the presidential contest,” he said after the latest atrocity.

Surveys show voters think that the PRI, which ruled Mexico for 71 years until 2000, is more likely to quell the violence. Its long rule was tainted by corruption and critics have accused the PRI of making deals with cartels to maintain order.

Vazquez Mota took a swipe at the PRI after the headless bodies were discovered, suggesting regions governed by the centrist party – which include Nuevo Leon and nearly two-thirds of Mexico’s states – had allowed crime to flourish.

“What happened in Cadereyta must be investigated, but what I think it shows, in a terrible and painful way, is the kind of permissiveness seen in these states towards organized crime,” she told Reuters in the eastern port of Veracruz on Sunday.

TATTOOED VICTIMS

The headless victims have not been identified.

The bodies showed signs of decay, indicating they may have been dead for days, Nuevo Leon Attorney General Adrian de la Garza said. He noted there had been no mass disappearances reported in the state, so the victims could have died elsewhere.

De la Garza said many of the bodies were tattooed, which could offer a clue to their identities. The dead may have been migrants passing through Mexico to the United States, he added. Migrants have been targeted by criminal gangs in the past.

Violent street gangs in Central America like the Maras have distinctive tattoos, though Nuevo Leon public security spokesman Jorge Domene said the victims did not show these markings.

Domene said some had tattoos of Santa Muerte, or “Holy Death” a female skeletal grim reaper venerated by both gangs and some broader, non-criminal sections of Mexican society.

The corpses were taken to Monterrey and authorities said they would perform DNA tests. Thousands of Mexico’s drug war victims have never been identified.

SPIRAL OF VIOLENCE

The bloody killings in Nuevo Leon were the worst there since 52 people died in an arson attack on a casino in Monterrey in August. That attack was also blamed on the Zetas.

Monterrey is Mexico’s most affluent city and was long seen as a model of economic development in Latin America. But it has been ravaged by the drug war over the last three years.

The horrifying conflict has been marked by an escalation of mass slaughter in recent weeks.

Last Wednesday, 18 people were found decapitated and dismembered near Mexico’s second-largest city, Guadalajara.

A week earlier, the bodies of nine people were found hanging from a bridge and 14 others found dismembered in the city of Nuevo Laredo, just across the U.S. border from Laredo in Texas.

Security analyst Alberto Islas said much of the recent spike in violence was the result of fighting over cocaine supplies from South America between the Zetas and the Sinaloa cartel.

Increased pressure on Guzman’s operations in Colombia this year had prompted the Sinaloa cartel to buy up a bigger share of cocaine from Peru and Ecuador, squeezing the Zetas’ supply and sparking tit-for-tat attacks among the gangs, Islas added.

The fact that state and federal authorities had repeatedly failed to capture and prosecute those responsible for the brutality meant the attacks were only getting worse, he said.

“They’re fighting across the whole country with complete impunity,” he said. “The government has to send out a very clear signal they will stop the violence and find those responsible.”

Late last year, several mass killings took place in the eastern state of Veracruz, which has been ravaged by the Zetas.

(Reporting by Michael O’Boyle, Dave Graham, Ioan Grillo, Anahi Rama, Mica Rosenberg and Ana Isabel Martinez; Editing by Kieran Murray and Stacey Joyce)

TRIPOLI, Lebanon—The uprising in Syria fueled intense clashes in neighboring Lebanon for a third day Monday, with gunmen firing assault rifles and rocket-propelled grenades as sectarian tensions spilled across the border.

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Syria and Damascus

“The burden of Damascus. Behold, Damascus is taken away from being a city, and it shall be a ruinous•Strongs 4654: mappalah, map-paw-law´; or mappelah, map-pay-law´; from 5307; something fallen, i.e. a ruin:—ruin( ous). heap.”
—Isaiah 17:1

At least four people have been killed in Lebanon’s second-largest city, Tripoli, since the gunbattles erupted late Saturday. Lebanon and Syria share a complex web of political and sectarian ties and rivalries, which are easily enflamed.

The revolt in Syria began 14 months ago, and there are fears the unrest could lead to a regional conflagration that could draw in neighboring countries. The United Nations estimates the conflict has killed more than 9,000 people since March 2011.

Syria is overwhelmingly Sunni, but the country’s President Bashar Assad and its ruling elite belong to the minority Alawite sect. The uprising has exacerbated Sunni-Alawite tensions in Lebanon, as well, sparking the clashes in the northern Lebanese city of Tripoli.

The clashes began late Saturday after authorities detained Lebanese national Shadi Mawlawi, an outspoken critic of Mr. Assad. Military prosecutor Saqr Saqr charged Mr. Mawlawi on Monday and five others, including a Qatari, a Palestinian and a Jordanian with belonging to an armed group and carrying out armed acts inside and outside Lebanon, judicial officials said. The officials spoke on condition of anonymity because they weren’t allowed to speak to the media.

The arrests apparently enraged the Sunni population supporting the uprising, and clashes soon erupted between Sunni fighters and Alawites who support Mr. Assad.

Tripoli’s Bab al-Tabbani neighborhood is overwhelmingly Sunni, and posters supporting the Syrian opposition hang on walls, and pictures of a local activist shot by a sniper in similar clashes in February read “Greetings to the free martyrs of Syria” and bear the Syrian revolutionary flag.

The fighters are clear about the root of the conflict that has them shooting at their neighbors. “Syria. It wants it this way. It wants to start a battle here so it can say, look, even in Lebanon the Sunnis are killing the Alawites,” said Mustafa Nashar, 35, whose family lives in an apartment overlooking Syria Street, which cuts through the neighborhood.

Groups of men, many of them carrying assault rifles and wearing military-style vests ducked Monday through trash-strewn alleys. The residents who have remained in the neighborhood take cues from fighters about when to sprint across alleys to evade the snipers up the hill.

A car with children crouching in the back sped past one alley, a bullet pinging the pavement right behind it.

The Lebanese army set up a small position a few hundred meters away from the fighting, but there was no sign of soldiers or police in the immediate area.

Resident fighter Mohammed Jaber, 49, said that such local fighting in Tripoli has been going on for decades and that the Syria unrest set it off again. “The old has become new,” he said. “Once the Syrian revolution started, we supported all efforts to get rid of the regime.”

Syria’s uprising started in March 2011 with protests calling for political reform, but a relentless government crackdown led many in the opposition to take up arms. Some soldiers also have switched sides and joined forces with the rebels.

World powers have backed the peace plan for Syria, which was put forward by U.N.-Arab League envoy Kofi Annan, but the bloodshed hasn’t stopped. More than 100 U.N. observers have been deployed in Syria to oversee the truce between the government and armed rebels.

On Monday, Syrian troops shelled the rebel-held town of Rastan, sparking intense clashes that sent bloodied victims flooding into hospitals and clinics, activists said.

The violence in the restive central Homs province and elsewhere around Syria is eroding Mr. Annan’s peace plan, which many see as the last hope to calm the crisis.

An amateur video showed a young girl who apparently suffered shrapnel wounds in her thigh undergoing treatment in a makeshift Rastan hospital while screaming in pain. Asked where her mother was, the girl cries: “She died!” Another video showed the bodies of four men half-covered by a green sheet.

Rastan, just north of Homs, has been under rebel control since January. The Britain-based Syrian Observatory for Human Rights and the activist network called the Local Coordination Committees said the latest shelling of Rastan started Sunday.

Rami Abdul-Rahman, who heads the Observatory, said the rebels were able to destroy several army vehicles during the clashes and kill soldiers. The accounts couldn’t be independently confirmed.

The attack on Rastan came after Syrian forces killed at least five people when they raided a Sunni farming village in Hama province, torching homes and looting shops in what appeared to be a sign of worsening relations among the country’s religious groups.

Also Monday, the Observatory and the LCC said government troops stormed the Damascus suburb of Qaboun, where they conducted raids and deployed snipers on roofs of buildings.

In Brussels, The European Union imposed visa bans and asset freezes against three people associated with Mr. Assad’s government. The measure brings to 128 the number of Assad’s supporters targeted by the bloc.

In Damascus, state-run TV said the results of last week’s parliamentary elections will be made public Tuesday. The government has praised the vote as a milestone in promised political reforms, but the opposition boycotted the polls and said they were designed to strengthen Mr. Assad’s grip on power.

Ally Financial Inc.’s mortgage subsidiary filed for Chapter 11 bankruptcy early Monday, potentially paving the way for Ally to sever itself from substantial litigation that has been a drag on its other operations and prevented it from repaying the remainder of its government bailout.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

Divided Nation

“But he, knowing their thoughts, said unto them, Every kingdom•Strongs 932: basileia, bas-il-i´-ah; from 935; properly, royalty, i.e. (abstractly) rule, or (concretely) a realm (literally or figuratively): — kingdom, + reign. divided•Strongs 1266: diamerizo, dee-am-er-id´-zo; from 1223 and 3307; to partition thoroughly (literally in distribution, figuratively in dissension): — cloven, divide, part. against itself is brought to desolation•Strongs 2049: eremoo, er-ay-mo´-o; from 2048; to lay waste (literally or figuratively): — (bring to, make) desolate(-ion), come to nought.; and a house divided against a house falleth.”
—Luke11:17

“Ah sinful nation, a people laden with iniquity, a seed of evildoers, children that are corrupters: they have forsaken the LORD, they have provoked the Holy One of Israel unto anger, they are gone away backward.”
—Isaiah 1:4

In a surprise move, Ally, the former in-house financing arm for General Motors Co., GM -1.68% also said it would pursue the sale its international operations, including auto-finance businesses and insurance operations, to maximize its ability to get out from under government ownership.

The decision for the mortgage unit, Residential Capital, to file for Chapter 11 bankruptcy occurred Sunday with a vote by the subsidiary’s board. The move has been widely expected for several weeks, as ResCap faces millions of dollars of bond-related payments starting this week. Ally said last month that ResCap was actively considering a bankruptcy filing.

By severing itself from ResCap, Ally hopes to focus its efforts on its core auto-lending and online-banking businesses, though it still faces significant risks.

The lender has been hit with billions of dollars worth of lawsuits over soured mortgage securities and claims to buy back shoddily underwritten loans by mortgage insurers and investors.

The ResCap bankruptcy filing, made in New York, potentially eliminates some of those hurdles for Ally.

As part of the bankruptcy, Nationstar Mortgage Holdings Inc., NSM +5.73% a mortgage-servicing company 80% owned by Fortress Investment Group LLC, FIG +0.30% will make a “stalking horse” bid valued at about $2.4 billion for ResCap assets, ResCap said. Ally is also making a bid valued at about $1.6 billion for a portfolio of ResCap loans. Other potential buyers will also be able to make competing bids for ResCap assets.

ResCap has also lined up a debtor-in-possession loan of $1.45 billion from Barclays BARC.LN -6.41% PLC to allow it to continue operating while in bankruptcy. Ally will provide ResCap with a separate DIP loan of $150 million and make a $750 million payment to ResCap’s estate, said Michael Carpenter, Ally’s chief executive officer.

That payment is part of a settlement Ally reached with ResCap over potential claims that could arise over the separateness of the companies and mortgage-repurchase claims against ResCap, he said.

Such issues have been a lingering question mark over Ally’s ability to make a clean break from ResCap, whose creditors could claim the companies are too intertwined to separate through a bankruptcy. Mr. Carpenter has repeatedly stressed ResCap is a separate company with its own board and should be treated as such.

“We are confident that there would be no basis for those attacks,” Mr. Carpenter said in an interview Sunday night. “It’s not because we feel we have a huge liability. It’s just because we…want to put it behind us and be done with it and not fight about it.”

Ally also said ResCap has obtained support from an ad hoc steering committee representing the subsidiary’s junior secured notes and other noteholders representing $781 million in debt. ResCap has also reached settlements with creditors who hold certain mortgage-backed securities issued by ResCap’s affiliates, which are subject to Bankruptcy Court approval.

The settlements are intended to help ResCap emerge from bankruptcy by the end of the year.

All told, Ally expects to take a charge of about $1.3 billion related to ResCap’s bankruptcy, Carpenter said. Ally warned last month in a regulatory filing that a ResCap bankruptcy could cost it $400 million to $1.25 billion.

Ally is 74% owned by the government after receiving a bailout during the financial crisis that topped $17 billion. The lender, which primarily finances GM and Chrysler Group LLC dealers and customers, was bailed out as part of the government’s broader rescue of the auto industry.

The U.S. Treasury Department last week told Ally it would support a ResCap bankruptcy filing if that was the route ResCap’s board decided to take, a Treasury official told The Wall Street Journal.

“We believe that by addressing the legacy mortgage liabilities at ResCap, the action taken today will put taxpayers in a stronger position to maximize the value of their remaining investment in Ally,” Timothy Massad, assistant secretary for financial stability for Treasury, said in a statement Monday.

Ally stressed that its online bank and auto-finance businesses are not part of the bankruptcy filing.

Ally has paid back about $5.5 billion of its bailout, and the various transactions it announced could help bring its repayment to the government to about two-thirds of its total bailout, Mr. Carpenter said.

Ally expects to sell its international businesses, which account for about $30 billion in assets and have operations in about 15 countries, in pieces, he said.

“We made the decision that in order to accelerate the process of repayment to the U.S. Treasury, this was in fact the best course of action from the point of view of the American taxpayer,” he said. “This is a very major restructuring of the company and it’s all about making both the bank and the auto franchise in the U.S. even stronger.”

As mortgage challenges mounted last year, Ally put on hold plans for an initial public offering, which was intended to help pay back its remaining government bailout.

While there are no definite plans to move forward with an IPO, one is “certainly a possibility if not a probability” in the future, Mr. Carpenter said.

ResCap employs about 3,600 workers, who are expected to be transferred to Nationstar when the acquisition closes, said Thomas Marano, who runs Ally’s mortgage operations and is chairman and CEO of ResCap. ResCap expects to close the sale at the end of the year, he said.

MADRID—Fears about a potentially messy Greek exit from the euro zone washed up on Spain’s shores, pulling local stock prices to lows not seen in eight and a half years as borrowing costs continued to soar.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

Analysts warned Monday that the ripples of a Greek exit would be stronger in vulnerable economies such as Spain’s, whose companies, banks and government rely heavily on foreign funding.

Those flags came amid ongoing concerns about Spain’s public finances and the health of its battered banking sector. On Monday, Moody’s Investors Service warned that Spanish banks will remain vulnerable to rising loan delinquencies even after they set aside an additional €30 billion ($39 billion) in provisions against real-estate loan losses.

Separately, Fitch Ratings Inc. said any disorderly exit by Greece from the euro would lead to widespread market disruption and severely weaker growth prospects in vulnerable economies such as Spain.

On Friday, the Spanish government told banks that they must further protect themselves against potential losses from loans to real-estate developers that aren’t currently considered at risk of default. The new provisioning measures come after the government took a 45% stake in Bankia SA, BKIA.MC -8.93% Spain’s fourth-largest bank by market value.

On Sunday and early Monday, lenders detailed the impact of the new provisioning rules on their earnings. As expected, Bankia is taking the biggest hit, saying it would set aside €4.72 billion to meet the new requirements. Banco Popular Español SA, POP.MC -4.37% which has a balance sheet that is roughly half the size of Bankia, said it would set aside €2.31 billion, but ruled out having to ask for state aid to cover the provision.

Following the lenders’ disclosures, the country’s key IBEX-35 stock market index fell 2.7%, hitting lows not seen since October 2003.

Spain also paid higher interest rates when it sold Treasury bills Monday, a bad omen ahead of a longer-dated bond offering Thursday. After the auction, the yield on Spanish 10-year sovereign bonds rose to its highest level since November, settling at 6.24%, a level that many analysts see as unsustainable.

Spain’s latest effort to shore up its banks is its fourth in three years. While the added provisions will improve the capacity of banks to absorb losses, the institutions remain vulnerable to the country’s economic recession and continuing real-estate crisis, Moody’s said Monday.

“We expect problem loans and loan losses to grow further, including in loan categories such as residential mortgages, loans to small and midsize enterprises and consumer finance,” senior analysts Alberto Postigo and Tobias Moerschen wrote in Moody’s weekly credit outlook.

Spain’s latest bank plan has some of the same problems as the previous three, namely that it doesn’t address all the problems in the sector and that the amount of public support is lower than many believe is needed, economists said.

The latest plan “has left many questions unanswered, and is unlikely to be sufficient to assuage investor concerns towards the health of the financial system and its impact on Spanish growth and the government’s fiscal accounts,” said Guy Mandy, an interest rate strategist at Nomura International.

Moody’s said that a recession in Spain will lead to deeper losses in segments such as residential mortgages, loans to small and mid-size enterprises and consumer finance. None of these areas were covered in Spain’s latest bank-sector overhaul. The credit-ratings firm expects Spain will need to inject some €50 billion into the sector, compared with a government estimate of €15 billion in fresh support.

“This will likely further increase Spain’s already elevated public debt burden,” Moody’s wrote Monday.

Speaking ahead of a meeting of euro-zone finance ministers in Brussels, Spanish Finance Minister Luis de Guindos shrugged off concerns that investors have been disappointed with Madrid’s latest plan to fix its banking sector. He said political instability in Greece is the biggest concern for global markets right now.

Mr. de Guindos said Madrid has implemented a series of wide-ranging economic reforms and that it was now time for the country’s euro-zone partners to be supportive of Spain.

“From now on, what we need is cooperation within the entire euro zone; we await a common response and that is what I expect to receive” at this meeting, Mr. de Guindos told reporters.

—David Roman contributed to this article