A quick look at Europe

One of the highlights that will dominate many market participants views will be Greece’s voluntary debt restructuring deal with its major creditors. Euro zone policy makers will be hoping that the deal does not inflame any further market uproar so that Greece will be able to receive further financial assistance tranche it was promised by the EU at the 26th October summit. Yesterday there were talks between Euro group ministers. These ongoing talk will be a main focus for markets ahead of the Brussels summit on 30th January. Other topics in focus at the meeting will include the ESM which will be the permanent Euro bailout fund that will take over from the EFSF in mid 2012. The ministers will also focus on the latest drafting of the EU’s fiscal compact and that member states are making cuts in debt, which was the main focal point of the summit on the 9th December. Acceptable progress will be key in whether the core euro zone will aid further financial assistance and maybe even from the ECB in the future. There have been recent setbacks in the drafting lately as Italy seeks to water down the compact’s limits on debt cuts. German Chancellor Angela Merkel and IMF Managing Director Christine Lagarde met on Sunday, with Greece no doubt high on the agenda at this particular meeting as well as proposals to boost the IMF’s firepower. No solid conclusions came of this meeting however. Today we saw a slight drop in the SMP purchases after many were expecting the number to trend higher. Buying of Spanish bonos and Italian BTPs was seen throughout last week, in response to news of the S&P downgrades but later shifted towards buying of Portuguese debt. According to a press report that was released yesterday stated that a haircut of more than 65% would cause the IIF to leave the negotiations as it would consider the haircut excessive and non-voluntary. Many economists believe that even if a deal is not negotiated then the EU would give a bridge loan to Greece for the gigantic 20th March bond redemption (14.4bn) that is to be re-paid. A joint press conference between the heads of the central banks and finance ministers of France and Germany should shed some light this week on any crisis developments.