Greek Crisis talks appeared to be building up momentum yesterday but the negotiations fell at the pivotal moment; Eurogroup finance ministers have rejected Greek bondholders’ demands for 4.0% coupons. Banks and other private institutions represented by the Institute of International Finance (IIF) were gunning for a minimum of 4.0% interest on the debt they hold if the nominal value is to be slashed by 50%. Greece, with the backing of the Eurogroup and the International Monetary Fund, has stated that it is not prepared to pay over 3.5% on the coupons.
The conflict of ideas has left the talks at a standstill and increases the chances that the Greek government will pass an involuntary bill that forces bondholders into taking the cuts. This would allow Private Sector Involvement companies to trigger Credit Default Swap payments and could lead to a free-for-all in the Eurozone if the fear of default catches on.
Markets have not reacted in great vigour to the breakdown in the deals; the Pound to Euro Exchange Rate has fluctuated very little and currently stands at 1.196. The Eurozone received some positive data releases today with German Purchasing Manager Index Services and Purchasing Manager Index Manufacturing both breaching the crucial 50.0 figure that marks the line between contraction and growth. PMIS continued its rise from 52.4 up to 54.5, and PMIM beat estimate growth figures to rise from 48.8 to 50.5.
The German figures even managed to push up the Eurozone as a whole, with EU PMIM rising from 46.9 to 48.7, and EU PMIS rising from 48.8 to 50.5. The UK saw a slight improvement in Public Sector Net Borrowing with the figure falling from £15.085 billion to £10.791 billion from November to December. However £10 billion was still enough to take Britain’s total debt over the gargantuan £1 trillion mark; the highest since records began in 1993 and equivalent to 64.2% of GDP.
The positive data in and around Europe could prove just enough to keep the Eurozone out of recession, but it appears that markets are keeping relatively calm in the face of the Greek debt storm because they still have faith that a deal will eventually be agreed upon; after all the consequences of no deal could be too vast to imagine.
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