Contentious Negotiations Over 2nd Greek Bailout

As we begin another trading week we have 2 key factors to consider when it comes to Europe – both revolving around Greece.

The attention has turned to Athens yet again as there continues to be contentious negotiations around the conditions for the second €130 billion (for now) Greek bailout. European finance ministers – led by Germany – are demanding that Greece cut its national minimum wage as well as takes other measures meant to improve Greece’s competitiveness and trim government spending.

From Financial Times: “The two sides were still far apart over projected cuts of 25 per cent in private sector wages, 35 per cent in supplementary pensions and the closure of about 100 state-controlled organisations with thousands of job losses. These are part of a €4.4bn package of savings the troika has said should be implemented at once.”

The key is to get Greek politicians to agree to the austerity measures. The current Greek Prime Minister Lucas Papademos struck a tentative deal with party leaders to extend spending cuts, however the leaders of the 3 parties supporting the government will meet tomorrow to work out details of the agreement. This meeting was rescheduled from today as they struggled to come to a unified response. Therefore, the focus remains on the ability of Greece to form a political consensus and to accept the austerity measures required to get other European members to approve the disbursement of the second aid package.

The leaders of Europe’s two biggest economies held a meeting today and while they sounded a tone that a deal would be reached, they also stressed that time is running out.

From Bloomberg: ““I can’t quite understand why we need a few more days — time is running out,” Merkel said today in a joint briefing with Sarkozy.

“An agreement has never been so close, neither for private nor public creditors,” Sarkozy said. “We have to conclude it. We can’t imagine there won’t be an agreement.”

Failure to secure the terms on which the next bailout aid would be disbursed would mean that Greece faces the possibility of defaulting on its upcoming debt €14.4 billion debt redemption, due March 20th. European finance ministers want guarantees from keep Greek politicians that they will carry out the austerity measures agreed upon with the current Prime Minister. The concern for Greek politicians is that European nations are asking for the country to go through an even deeper recession and the current leader in polls Mr. Samaras has so far been reluctant to agree to all the “troika’s” demands.

PSI Now Held Up By Bailout Negotiations

In parallel negotiations to the Greek bailout negotiations, we continue to monitor the secondary negotiations around private sector involvement in Greek debt restructuring.

Private creditors are willing to accept the loss of more than 70% in a voluntary debt exchange.

However, European financial chiefs are not signing off on the deal until they get agreement from Greece on the terms on the 2nd bailout as they want to keep the leverage on Greek politicians.

Therefore as we wind through this week if resolution cannot be found it means that there will be a very big negative risk event looming – threat of default and Greek departure from the Euro – which will add uncertainty to financial markets.

The next concern is that even with Greek debt restructuring and new loans, Greece may still be saddled with too much debt, to little growth, and too large budget deficits, to do without even more support – something countries like Germany will be very reluctant to provide.

For a look at the impact on the EUR/USD from today’s fundamental developments, see today’s technical update: EUR/USD Ready for Another Bull Run After a Double-Three Correction

To gain free access to webinars to discuss fundamental risk events as well as technical analysis and trade management, register here at IBTrade.

Nick Nasad is an analyst, educator, and trader; and one of the main contributors to  FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.