Amazing how the e-mini S&Ps can trade down over 10 points on a technical delay in the Greek debt deal. Anybody who has worked on restructurings know these are very difficult issues to hammer out, especially with so many parties at the table.
Seriously, with Merkel up for reelection is there even a remote possibility she will let Greece crater and potentially blow up the Eurozone? She may have trouble selling debt relief to her constituency, but, in our opinion, there is no way this thing blows.
Here is part of the statement by the Eurogroup President, Jean-Claude Juncker, which, actually, for the first time we can recall, praises Greece’s reform efforts,
The Eurogroup noted with satisfaction that all prior actions required ahead of this meeting have been met in a satisfactory manner. This reflects a wide ranging set of reforms, as well as the budget for 2013 and an ambitious medium term fiscal strategy for 2013-16. These efforts demonstrate the authorities’ strong commitment to the adjustment programme.
The Eurogroup commended the considerable efforts made by the Greek authorities and citizens to reach this stage.
So the hangup is not over whether there will be a deal, but what type and how much debt relief Greece will be granted by the official sector. That is, how long will maturities be extended and what will be the haircut on interest rates. Will the debt relief be phased in and conditional on Greece staying in their economic program? These issues take time to debate, come to a consensus, and then translated into a head of terms.
Can the politics get away? Absolutely, and that’s the big risk and especially true for the European/Greek street. Less so with the EU policymakers, however.
By the way, the better the official sector deal for Greece, the better for Greek private sector bonds.
(click here if chart is not observable)