Back To Drawing Board
The Eurogroup was not impressed with the inter-party agreement from Athens and late after the Eurogroup meeting yesterday Greek PM Venizelos was sent back to Athens with demands for deeper cuts. It appears that the EU finance ministers are not prepared to sign off the deal until they get a stronger sense that Greece will actually push through with its pledges,. Lawmakers there are supposed to vote on the new austerity measures over the weekend and an “implementation law” is supposed to be considered in the next 10-15 days, according to local sources. Eurogroup chair Juncker stated on Thursday that there is now another week for new cuts to be found and he hoped the Eurogroup would be able to sign off on the plans at a new meeting next Wednesday – another deadline markets will need to contend with. In the background, the PSI deal is still running, but the ECB’s participation has been of greater focus and now it appears they would not be able to calculate their own participation until Greece reaches agreement with other troika members. This only adds to potential uncertainty up ahead. While the ECB offered no change in policy, Draghi initially refused to be drawn into discussions on the subject, he later revealed his thoughts on the legality of transferring ECB holdings to the EFSF. President Draghi’s post-decision conference revealed the ECB’s stance on several issues. On the macro front, little has changed and the bank remains in data-watch mode. Draghi stressed that while economic data has stabilised there are downside risks and it is too early to fully assess the impact of the 3y LTROs. On the subject of the LTROs themselves, Draghi dismissed the idea that there was any stigma attached and said that their use should be seen as a commercial or business decision only. The easing of collateral requirements further – allowing several countries’ national central banks to accept credit claims as collateral, may help with overall LTRO volumes, though at a cost to the ECB’s balance sheet risks. EURUSD traded 1.3251 – 1.3291, USDJPY77.54-77.75.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank