You are here
World markets cautious as Greek talks drag on
Published:
Tuesday, February 7, 2012
LONDON— Markets were in a cautious mood yesterday as talks dragged on between Greek political leaders over a fresh austerity package that is required if the debt-ridden country is to get a crucial bailout package. Even though another round of deadlines have passed, the prevailing mood in the markets is that Greece will get a debt-reduction deal with its private creditors as well as a second bailout from its partners in the eurozone and the International Monetary Fund. However, as one deadline after another is missed, some traders are preparing for the worst—a disorderly debt default that could send shockwaves round the global economy. The leaders of the parties backing Greece’s coalition government, which is headed by Prime Minister Lucas Papademos, were to hold a second day of emergency talks over austerity measures that rescue creditors are demanding in return for more money. The talks, however, were postponed until Tuesday despite pressure from the European Union for a speedy agreement so that the country can avoid a default on its debt.
Greek politicians are balking at the level of austerity demanded by the country's bailout lenders. The three party leaders have publicly opposed steep cuts in private sector pay demanded by the eurozone and International Monetary Fund, but their backing is needed for the government to reach a deal for a €130 billion ($170 billion) bailout.
“While we still believe that a voluntary Greek debt restructuring deal and further EU aid will be forthcoming, the risks of a more disruptive scenario have probably increased,” said Vassili Serebriakov, an analyst at Wells Fargo Bank.
In Europe, the FTSE 100 index of leading British shares closed down 0.2 per cent at 5,892.20 while Germany's DAX was flat at 6,764.83. The CAC-40 in France ended 0.6 per cent lower at 3,405.27. So far this year, the mood in markets has been particularly upbeat, especially compared with the febrile trading that marked 2011. Stocks have rallied—many indexes are at their highest levels in months—while the cost of borrowing for key euro countries, such as Italy and Spain, has eased to levels that are considered sustainable in the long-run. One of the reasons behind the change in tone has been optimism that Greek Prime Minister Lucas Papademos, who was due to meet with negotiators from the eurozone and the International Monetary Fund later yesterday, will secure the second bailout.
The €130 billion (US$171 billion) bailout deal is vital for Greece to avoid bankruptcy next month as it cannot cover a €14.5 billion (US$19.1 billion) bond repayment due March 20 without the rescue funds. The bailout's implementation also depends on Greece’s progress in separate talks with banks and other private bondholders to forgive €100 billion (US$131.6 billion) in Greek debt, in exchange for a cash payment and new bonds with more lenient repayment terms. Another key prop to the improvement in market sentiment this year has been a run of solid economic data out of the US, which has prompted some analysts to revise up their expectations for growth in the world’s largest economy. The improving trend was evident last Friday, when government figures showed the US economy generated a bigger than expected 243,000 jobs in January, pushing the unemployment rate down to 8.3 per cent.
The euro was under pressure as investors awaited developments in Athens—the currency was trading 0.1 per cent lower at US$1.3109. (AP)
Disclaimer
User comments posted on this website are the sole views and opinions of the comment writer and are not representative of Guardian Media Limited or its staff. Guardian Media Limited accepts no liability and will not be held accountable for user comments.
Please help us keep out site clean from inappropriate comments by using the flag option.
Guardian Media Limited reserves the right to remove, to edit or to censor any comments. Any content which is considered unsuitable, unlawful or offensive, includes personal details, advertises or promotes products, services or websites or repeats previous comments will be removed.
Before posting, please refer to the Comunity Standards, Terms and conditions and Privacy Policy
