Draghi Grilled On Greece
The latest deadline on Greece failed to bring any conclusions and negotiations continue. German finance minister Schaeuble announced that there will be no deal announced at the Thursday meeting, since the current deal does not fulfil conditions. He added that it is still not clear whether the deal can successfully reduce the debt burden to 120% of GDP., which is what the troika requirements have previously stated. 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. But already the labour minister has resigned and unions have called 48-hour strikes. In principle the PSI negotiations have to be concluded by Feb 13 if the Mar 20 bond payment is to be made, and that is supposed to be contingent on the troika signing off the aid package. The timeline is now getting down to the wire, but still markets are trading like it’s all a done deal. While the ECB offered no change in policy, President Draghi’s 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 set that their use should be seen as a commercial or business decision only. The large elephant in the room was of course the ECB’s stance on Greece and the majority of questions were directed to this. While 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. The euro has a choppy session, trading in a range 1.3322-1.3215 but broader risk appetite was positive, despite the lack of progress on Greece.. Earlier the Bank of England delivered an additional GBP50bn in the quantitative easing programme. In the statement, Governor King noted that there were some more positive signs and a gradual strengthening of output should be supported by a gentle recovery in household real incomes but issues in the Eurozone remain the big concern. The pound earlier found some support from better than expected trade and industrial production data and the reaction to the QE announcement was relatively muted. Ahead today, CPI data is due in Norway and Switzerland while Bernanke will be on the wires. Market focus will inevitably stay in Greece however.
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