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Mixed signals in the eurozone

Mixed signals in the eurozone

Hopes of an imminent agreement between Greece and its private bondholders were dashed on Thursday due to the opposition of some of the Greek political leaders towards additional spending cuts demanded by the lenders as well as a disagreement between the IMF and Germany on the involvement of the ECB in the bond swap.

Greece’s creditors doubt the country’s ability to carry out all the necessary reforms in order to reduce debt and they demanded additional austerity measures. Greek officials objected, fearing that implementing them would further aggravate an already serious recession in the country.

China may well be willing to help; During Angela Merkel’s official visit to Beijing, the German Chancellor has guaranteed the stability of the eurozone while calling for greater support from China, whose leaders have responded by suggesting there might be room to negotiate an expansion of the financial stability fund (EFSF) and the stability mechanism or ESM.

Meanwhile France auctioned 7.9 billion euros of various bonds on Thursday. The French government sold 10-year debt at an average yield of 3.13% compared with 3.29% the country had to pay at the previous auction held in January. Earlier on Thursday Spain auctioned 4.56 billion euros of various bonds exceeding the target of 4.5 billion. The country sold 3-year bonds at an average yield of 2.86% in comparison with 3.38% last month.

All in all EUR is not in a good place – better bond yields and the possibility of Chinese help (publicly this time) are good news but the fact they are even relevant is not.

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