The Eurogroup statement on Greece starts with welcoming the significant improvement made and the adoption of a substantial set of structural reform and the 2013 budget. Furthermore, the revised fiscal targets (i.e. two year programme extension as proposed by the Greek government) are considered an appropriate adjustment and the Eurogroup looks forward to adoption of the legal texts. The 2-yr extension however means that there will be extra financing needs (€32.6B according to a draft Troika report). It also means that the debt sustainability analysis needs to be revised (omitted in the draft report). The latter two aspects were not resolved yesterday. The disagreement between the Eurogroup and the IMF at the press conference was striking. Juncker said that the 120% debt to GDP ratio, targeted by 2020, would also be extended, namely to 2022. IMF Lagarde insisted that this would not be the case. Also on how to bridge the financing gap, official creditors have different views. The IMF calls for a haircut for the official sector, whereas Europe is trying to come up with less structural (and therefore again short term fixes?) measures like extending loan maturities, lowering interest rates,…
An extraordinary meeting to settle the issues will be convened on November 20. The Eurogroup expects that by that time; it can sign off on the next €31.5B aid tranche so that all national procedures for the disbursement can be taken care off. The statement didn’t mention Friday’s €5B Greek t-bill redemption, but officials declared that this isn’t an issue as Greek banks would be able to rollover the amount. While ahead of this Eurogroup meeting no outcome was expected (apart from formally agreeing a 2-yr extension), the split opinions remain and we believe the uncertainty will continue spoiling sentiment. However, of late, we noted that Spanish/Italian bond hold up relatively well in the global risk off climate. So while some extra widening can be expected, we think it will remain subdued for now.