Christine Lagarde, managing director of the International Monetary Fund, took to the radiowaves this morning to discuss the latest developments.
Lagarde told Germany’s Deutschlandradio that she was “determined to be positive” about the Private Sector Involvement (PSI) talks, adding that:
Everybody has to participate.
Yesterday, Lagarde urged European leaders to increase the firepower of their bailout fund to avoid dragging the global economy down. She warned that the world risked an economic spiral reminiscent of the 1930s.
European stock markets have fallen in early trading, following eurozone finance ministers’ refusal to accept Greek bondholders’ ‘maximum offer’.
Germany’s Dax dropped 1%, while the FTSE 100 index in London and Spain’s Ibex have both lost 0.6% while Italy’s FTSE MIB and France’s CAC slipped 0.4%.
So, not a panic selloff. Michael Hewson, market analyst at CMC Markets, said traders are managing to remain “sanguine” about the slow progress (and lack of progress) of the Grek talks:
It would appear that last night’s rejection by European finance ministers of the private creditors so -called line in the sand of a 65%-70% haircut, and a 4% coupon hasn’t really impacted sentiment that much.
Here’s today’s agenda:
• Manufacturing and services PMIs for January for France, Germany and the eurozone – 8am-9am GMT
• UK public finances for December – 9.30am GMT
• IMF publishes its latest World Economic Outlook report: 3pm GMT
European bond auctions:
Netherlands bond auction – 9am GMT
Spain bill auction – 9.30am GMT
Malta bill auction – 10am GMT
+ US Federal Open Market Committee starts two-day meeting
Here’s a round-up of how the eurozone finance minister’s decision has been reported overnight.
Reuters warned that the disagreement “increases the risk that it will prove impossible to strike a voluntary restructuring deal between Greece’s creditors and the Greek government”, adding:
Negotiations over what’s called ‘private sector involvement’ (PSI) have been going on for nearly seven months without a concrete breakthrough. Failure to reach a deal by March, when Athens must repay 14.5 billion euros of maturing debt, could result in a disorderly default.
Bloomberg says that the deadlock is “reminiscent of October’s bargaining over bond losses and risks disrupting the January 30 summit [of EU leaders]“.
Brinkmanship over Greece clouded progress toward new fiscal rules and a beefed-up rescue fund, denting newfound confidence in the anti-crisis strategy and threatening to overshadow next week’s summit of European leaders.
And The Daily Telegraph explained:
Talks to restructure Greece’s debt hit a new impasse after eurozone finance ministers rejected an offer from private bondholders because the cost of sweeteners on new Greek bonds were too high.
The ministers have sent the offer back for negotiations,” said an official last night. “The ministers want a lower coupon than presented in the offer.”
Eurogroup president Jean-Claude Juncker: Greek creditors must accept higher more losses. Photograph: John Thys/AFP/Getty Images
Jean-Claude Juncker, the chairman of the Eurogroup countries, was adamant this morning that Greece’s creditors must accept a lower interest rate on the new, longer-dated bonds that are expected be issued in exchange for their existing Greek holdings.
Juncker told reporters in Brussels that:
Ministers asked their Greek colleagues to pursue negotiations to bring the interest rates on the new bonds to below 4% for the total period, which implies the interest comes down to well below 3.5% before 2020.
Juncker also declared that “It’s obvious that the Greek program is off track”, indicating that he expects bondholders to take greater losses.
This raises the stakes between Greece and its bond-holders. Last weekend, the Institute of International Finance said that it had already made its “final” offer to Greece.
Good morning, and welcome to another day of our live coverage of the eurozone debt crisis….
…a crisis which deepened in the last few hours after eurozone finance ministers rejected the offer from Greece’s creditors to restructure its debts.
Following yesterday’s meeting in Brussels, ministers insisted that banks must accept a lower interest rate on the new Greek bonds that they will receive as part of the deal. The 4% or higher coupon demanded by the Institute of International Finance (IIF) (who represent Greek creditors) is simply not acceptable, they said.
The move is likely to raise fears that Greece will not agree a deal with its lenders in time. We’ll be tracking all the reaction and developments this morning.
Later today the International Monetary Fund will publish its latest economic forecasts for the world economy. A draft version of the report leaked last week, so markets are already expecting the IMF to slash its growth predictions.
On the economics front: the latest UK public finances data will be released this morning, and we’ll also get a healthcheck on Europe’s manufacturing and services sectors.
There’s also a few bond auctions to look forward to, from Spain, the Netherlands and Malta.
We’ll also keep an eye on events in Davos, where the World Economic Forum officially begins tomorrow.
