Greek Deal Delayed, But Euro Rebounds From Selloff

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The euro was slammed in late Asian trade today after EcoFin officials failed to reach a deal on Greece, pushing of the decision to next Monday November 26urur. The Eurogroup President Claude Junker issued a very brief statement noting that , “The Eurogroup noted with satisfaction that all prior actions required ahead of this meeting have been met in a satisfactory manner. This reflects a wide ranging set of reforms, as well as the budget for 2013 and an ambitious medium term fiscal strategy for 2013-16. These efforts demonstrate the authorities’ strong commitment to the adjustment programme. “ However, he added that, “The Eurogroup interrupted its meeting to allow for further technical work on some elements of this package. The Eurogroup will reconvene on Monday, 26 November.”

The news of the delay sent EURUSD tumbling to a low of 1.2735 from 1.2822 high before the release as traders dumped the unit in wholesale fashion. However, the pair has since stabilized as bargain hunters bid it back above the 1.2760 level in morning European trade.

The technical decision revolves around the issue of whether to extend Greece deadline of returning to the bond markets. Under the original terms of the 2010 bailout deal Greece was supposed to reduce its debt to GDP ratio to 120% by 2020. However some EcoFin members believe that this deadline is unrealistic and were pushing to extend it to 2022.

Frankly, the current Ecofin discussion on Greece resembles nothing more than a medieval argument over how many angels can dance on the tip of pin. Greece is clearly insolvent, the policy path of austerity politics has done nothing but exacerbate financial problems by continuously shrinking the country’s GDP and in the end Greece will need debt forgiveness if it is ever to resolve its problems. For now however, such discussion is politically impossible, but authorities are looking at ways of ameliorating Greeks debt by a combination of lowering of rates and extension of maturities.

In the meantime the EUR/USD continues to hold ground above the 1.2750 level as traders expect an eventual deal on Monday, and the pair may even rally back towards the 1.2800 level as short covering persists.

Boris Schlossberg
Managing Director

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