Despite some apparent progress over the weekend, the single currency understandably is on the defensive this morning in response to the continuing hiatus in Greece. After lengthy talks between the leaders of the major Greek political parties over the weekend, it appears that no agreement has yet been reached on the stringent demands set down by the troika. The latter has become alarmed by the continued deterioration in Greece’s financial position, insisting that all political parties accept the need for significant additional cuts to government spending and sizeable reductions in wages.
Antonis Samara, leader of the New Democracy Party, last night suggested he was not convinced that acceding to the troika’s demands was in Greece’s best interests, claiming he would fight proposals that would ensure Greece’s recession would actually worsen. This was in contrast to a statement from the office of Prime Minister Papademos, which stated that broad agreement had been reached on a variety of measures including spending cuts worth 1.5% of GDP, a boost to funding for social security and various competitiveness initiatives.
Particularly contentious are the troika’s demands that private sector wages be lowered by more than 15% and the call for further significant layoffs in the public sector. Interestingly, it appears that Greek politicians have not even reached the point where they have commenced discussions on these page and jobs demands.
Unsettling the euro is that this all needs to be agreed very shortly given that Greece does not have the money available to pay for the EUR 14.5bln bond redemption on March 20th. The Eurogroup has said that it will not consider lending Greece any more money until the country’s politicians agree to the troika’s demands. Because of the rapidly worsening fiscal position in Greece, the size of any new bailout may be closer to EUR 145bln, up from the initial estimate of EUR 130bln.
After reaching 1.32 on Friday for the fourth time in a week, the euro has been sliding and is now threatening to break 1.30. This time around it will be interesting to see whether the buy-on-weakness observed over recent trading sessions re-emerges.
