EUR USD (1.3110) Yesterday yet another deadline set for Greek politicians to concur on austerity expired and news circulated that the Greek PM has instructed the Finance Ministry to calculate the costs of a eurozone exit. The euro, however, resolutely stuck to a range set mid last week. Does that mean that as the markets struggle to get an accurate handle on what the fallout of tortuous negotiations may be, the probability of Greek default is increasing in the collective consciousness? One could say that in general the investors have a twopronged approach – a deal would lead to a short-term spike in the euro and a default would lead to a sharp decline but only short-term. The second outcome probably assumes a contagion free situation where recently agreed firewalls will be implemented. That said, the question remains what is better for Greece – a voluntary PSI accompanied by austerity or an orderly default? The latest Eurostat data shows that growth-hindering austerity measures hardly make a dent in the debt-GDP ratio – in Q3 2011, the combined 17 eurozone debt to GDP ratio decreased but in Greece it rose from 154.7 percent (Q2) to 159.1 percent (Q3). The latest Franco-German suggestion envisages earmarking funds to pay off bondholders. But the money to run the government and its dues remains tied to the precondition of implementing austerity measures. This plan too is unlikely to make economic recovery easier. Yesterday, the euro’s short-lived decline helped us to embark on a bullish strategy with 1.3395 as target and risklimit at 1.2910.
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Deutsche Bank