If Greece does not receive its €130 billion aid package soon then it will face a disorderly default from the Eurozone. The talks between Greece and its Private Sector Creditors have been going on for weeks and as of yet no agreement has been made; earlier on in the week the negotiations broke down when coupon rates were not agreed. Greece, backed up by the Eurogroup of Finance Ministers and the IMF, put forward an offer of coupons with a nominal value slashed in half and a new interest rate of 3.5%. The bondholders deemed this offer unacceptable and refused to settle for less than 4.0% interest rate on the cut-price coupons.
This morning the talks appeared to be making progress with rumours emanating from Athens that A) Investors are prepared to accept a 3.75% coupon – Michael Hewson at CMC Markets – and B) Credit holders are willing to take a 70% haircut on Greek debt to help push through a deal – Josef Ackerman, chief executive at Deutsche Bank and chairman of the IIF.
But this progress was quickly put in jeopardy, as the EU and IMF expressed their concerns that the proposed Greek Austerity measures have not been implemented sufficiently. The EU, IMF, and ECB lenders (known as the Troika) want Greece to; cut government spending in defence and health; reform supplementary pensions; assess Greek banks’ capital shortfall; improve wage flexibility; and liberalise product and service markets.
To ensure that markets remain suitably perplexed, the outcome of the Greek debt talks remain characteristically elusive. Like an episode of Eastenders, the crashing beat of the drums throws the Eurozone narrative into darkness just as we believe that we are close to a resolution.
The Pound to Euro Exchange Rate is 1.197 (as of 14:18 GMT). Expect the Euro to strengthen if a comprehensive deal is reached in the near-future; expect the Pound to rally as the threat of Greek default increases.