- Greece on a different wavelength to other Eurogroup members
- April deadline expected to be missed
- If so, Bund yields to come under renewed pressure
- Capital markets wait for a political decision
As was expected from Riga, Latvia, nothing constructive happened on the Greece front. The Eurogroup continues to pile on the pressure, urging the Greek government to get with the program, speed up negotiations on economic overhauls, and avoid crashing out of its international bailout.
European officials are basically at their wits’ end with Athens for dragging its feet on agreeing on overhauls and budget cuts that the country is required to implement to receive sustainable aid. The end of April was the tentative deadline agreed upon in February.
Greece Won’t Dance to the Same Tune
Today’s tense and rather hostile meeting in Latvia highlights eurozone officials’ frustrations with their Greek counterparts. The extraordinary part is that Greece is the only country that believes most of its problems and issues have been resolved. From an international creditors’ point-of-view, next week’s deadline is going to come and go with no new agreement. Greece will be forfeiting potential disbursement of cash from the existing program.
The next date on the calendar is the May 11 Eurogroup meeting. So far, Greece has managed to keep servicing its debts and still has access to the short-term bill market.
That being said, the government is feeling the squeeze. This week it was only able to raise €430 million (if the official number can be believed) from its public entities, a move that has angered the European Central Bank (ECB). Expect ECB President Mario Draghi and company to consider raising the haircuts to pressure Greece to get with the program.
Greece’s €240 billion bailout deal from the eurozone expires in June. Officials are supposed to be using all this time before the deadline to negotiate a fresh support package that they will inevitably require. The government will also be facing more than €6 billion in debt repayments to the ECB over the summer months.
Where To From Here?
Greek risk will continue to hang over capital markets. Euro data this week is showing signs for the first time that the Greek fiasco is starting to impede the broader economic recovery across the eurozone. The downside risks to the consensus forecast of a steady acceleration in eurozone gross domestic product growth are increasing. This will continue to have a negative impact on the EUR and it will add further pressure on eurozone yields. European equities look vulnerable from a growth prospective and could come under pressure. Year-to-date, they have had a good uninterrupted run.
Investors can only watch, unlike earlier in the crisis, when markets were exerting more pressure on governments. Today it’s a political jig, and capital markets have to watch and wait.