Regarding Greece, German FM Schaeuble ruled out a Greek exit and also German Chancellor Merkel said the euro “is more than a currency”. Greek FM Stournaras and the Troika are hammering out the final details on the €13.5B austerity measures, needed to receive the next €31.5B aid payment, ahead of the EU Summit (Thursday/Friday). On that meeting, Greek PM Samaras will ask a 2-yr extension for the Greek programme. Officials are likely to give in to this request but are at odds on how the a rising financing gap (€15-20B) will be closed. The ECB is looking for more EU money, whereas Europe is looking at the ECB to make an effort. This weekend ECB Asmussen supposed that Greece bought back its own debt (at market prices) and that this would be sponsored by an ESM loan. Anyway, despite Swedish FM’s Borg comments (“As it stands now, one should draw the conclusion that it is likely that Greece leaves the euro zone. We can’t rule out this happening within 6 months”), the Greek case can be approached on an optimistic way at the start of the week.
Spain is still delaying an official aid request. FM de Guindos said the government is not in a hurry: “There is much more optimism toward Spain than three or four months ago”. ECB Bonnici on the other hand, Spain should profit before it comes under pressure again. That seemed to be the general feeling at the IMF/WB meeting. The ECB’s OMT and the ESM 2.0 are deployed, but it takes two to tango. Going into the EU Summit, we don’t think the Spanish stance will change. A Moody’s verdict (possible rating downgrade to junk) and the regional elections (Oct 21; Galicia, Basque country) are two events that could break the deadlock.