Greece, a Proxy for Eurozone risk regions
16/02/10 21:06
The Eurogroup of 16 Eurozone finance ministers met
yesterday and, somewhat against expectations, there
were some interesting developments. However, no
concrete proposals for financial assistance emerged.
At the subsequent press conference, Eurogroup Chairman Juncker revealed that the finance ministers are now in agreement that if enough signs of progress towards deficit reduction are not visible by March 16, additional fiscal measures could be imposed on Greece. He said Greece has agreed to this.
He declined to describe the detail of any financial bail-out mechanism that may be in preparation on the grounds that "we do not think it would be wise to have a public discussion of such instruments". He added that the vigour of the Greek reaction to the crisis would likely make such instruments unnecessary in any event.
At the subsequent press conference, Eurogroup Chairman Juncker revealed that the finance ministers are now in agreement that if enough signs of progress towards deficit reduction are not visible by March 16, additional fiscal measures could be imposed on Greece. He said Greece has agreed to this.
He declined to describe the detail of any financial bail-out mechanism that may be in preparation on the grounds that "we do not think it would be wise to have a public discussion of such instruments". He added that the vigour of the Greek reaction to the crisis would likely make such instruments unnecessary in any event.
However, Austrian Finance Minster Proell was more forthcoming in a subsequent TV interview, saying that "this is not about Greece, but about the euro". He said "we made it clear that&we are ready to give help&in the form of loans, support, whatever, this toolbox still needs to be discussed, but the political intention is clear". He added that "if Greece does more than it is doing now to get the country on track, to stop putting the euro at risk, then we are ready to help".
Juncker added that markets are completely wrong if they think they can "destroy" Greece and that the people of Greece will not be left to the mercy of markets. Earlier he said that Luxembourg would extend bilateral aid to Greece if needed, and in so doing became the first lawmaker to publicly offer direct financial support, at least in principle. He said it was absurd to think that Greece would be expelled from the Eurozone as a consequence of the crisis.
Perhaps the most interesting development overnight was that it emerged that EU Economic and Monetary Affairs Commissioner Rehn will soon propose new measures aimed at tighter coordination of economic policy across the Eurozone. It was not immediately clear if these measures would be limited to increased institutional oversight or scrutiny, or whether further fiscal restrictions would be imposed on all member states as a condition of Eurozone membership. Another possibility is that the penalties for exceeding the 3% deficit limit imposed by the Stability and Growth Pact could be stiffened, but media reports suggests the new steps could be limited to increasing the Commission's power of audit.
On a more general note, Juncker said that the G7 should remain the "global forum for discussing exchange rates" given that "we can't really do this at the G20 - there are too many people around the table". Portugal's Constancio was also nominated to succeed Papademos as the next ECB Vice President.
The RBA minutes from the Feb 2 policy meeting offered no further insight into the likely timing of future hikes. However, the reference to the February decision being 'finely balanced' suggests that incrementally strong data leading into the March meeting could be enough to prompt another hike.
The minutes note that policy is still accommodative and, UBS economists observe, the RBA forecast for moderating inflation assumes a "gradual further increase in the cash rate". So more rate hikes are still in the pipeline, but the timing remains relatively uncertain. Our economists still expect another RBA hike in March followed by a pause until August. This is at the more aggressive end of market expectations with the OIS curve currently pricing in 8bps of tightening at that meeting.
RBA Assistant Governor Debelle spoke but did not refer to monetary policy. He said downside risks to the recovery remain in the US and Europe, but that risks in Asia are to the upside, indicating that "Australia is now more tied to" Asia than elsewhere. On Thursday Governor Stevens will appear before a parliamentary committee.
Source, UBS, Bloomberg, Chris Lori Forex Trading