Greek bonds hit by bailout worries
Greece’s government debt is falling in value this morning.
The yield, or interest rates, on 10-year Greek bonds has jumped to 8%, from 7.85% last night. That means its price has fallen, with investors calculating that there’s a greater risk that Athens defaults.
Short-term Greek debt is also under real pressure, sending yields spiking higher:
The divisions among the IMF’s board over Greece’s bailout highlight its long-running row with Europe, points out the Financial Times:
The fund did not reveal which board members had objected. But the public statement illustrates the sensitivity surrounding the continuing Greek bailout programme. It also points to one of the main political challenges facing Christine Lagarde, the IMF’s managing director who has battled with European leaders over the Greek debt issue for almost two years.
The IMF has been the target of criticism since first joining the EU-led bailout of Greece in 2010, particularly over the strict fiscal targets it set early on. Economists have also blamed the IMF and its European partners for not doing enough to reduce Greece’s long-term debt load.
But the IMF has for the past two years insisted that Germany and other eurozone members needed to do more to tackle that debt. By labelling Greece’s public debt unsustainable it has also made its own financial contribution to a bailout impossible under its own rules unless Athens’ debt is either restructured or forgiven in part.
The IMF has also made its traditional call for Greece to receive fresh debt relief.
Most Directors considered that, despite Greece’s enormous sacrifices and European partners’ generous support, further relief may well be required to restore debt sustainability.
They stressed the need to calibrate such relief on realistic assumptions about Greece’s ability to generate sustained surpluses and long term growth. Directors underlined, however, that debt relief needs to be complemented with strong policy implementation to restore growth and sustainability.
IMF board split over Greek bailout
A split has opened up at the International Monetary Fund over the terms of Greece’s bailout, raising new doubts over its participation in the rescue plan.
In its latest annual review of the Greek economy, the IMF revealed that its board members are in disagreement over whether Athens should enforce even more austerity to satisfy its lenders.
“Most” of the 24-strong group agreed that Greece was on track to achieve a surplus of 1.5% of GDP, and should not make further cuts.
However, another group on the board argued that Athens needed to tighten further to push its surplus up to 3.5% of GDP, the level agreed in its last bailout.
In a rare statement, the IMF says that:
Most Executive Directors agreed with the thrust of the staff appraisal while some Directors had different views on the fiscal path and debt sustainability…..
Most Directors agreed that Greece does not require further fiscal consolidation at this time, given the impressive adjustment to date which is expected to bring the medium-term primary fiscal surplus to around 1½ percent of GDP, while some Directors favored a surplus of 3½ percent of GDP by 2018.
Here’s the statement:
IMF Executive Board Concludes 2016 Article IV Consultation, and Discusses Ex Post Evaluation of Greece’s 2012 Extended Fund Facility
IMF board meetings are usually kept confidential, so we wouldn’t normally know whether decisions are unanimous or not.
The unusual decision to reveal the split highlights the divisions over Greece within the IMF, which hasn’t joined the country’s third bailout, agreed in August 2015.
Last month, a leaked report showed that the IMF believes Greece’s debt pile is on track to swell to almost 300% of GDP by 2060 — a profoundly unsustainable level.
The agenda: Political tensions weigh on the markets
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Political tensions are rising in Europe, and exerting pressure on the financial markets.
The possibility of a far-right win in France’s presidential election this spring has pushed French bonds to their weakest level in 18 months, widening the gap with ‘safe-haven’ Germany.
If the eurozone was totally secure, French debt would be as safe as Germany’s – but right now, investors seem anxious.
An opinion poll showing that Angela Merkel’s CDU party had fallen to second place, behind the Social Democrats, has also caused jitters.
Michael Hewson of CMC Markets explains:
European markets got off to a poor start to the week yesterday, slipping to seven week lows, with investors once again reluctant to try their luck against a backdrop of rising political risk, on both sides of the Atlantic.
While US President Trump has extended his one man crusade to the US court system, after his travel ban was overturned, any notion of a more stable political outlook in Europe took another twist over the weekend, as a narrowing of opinion polls in Germany, cast doubt on Angela Merkel remaining as Chancellor later this year, while Marine Le Pen launched her bid for the French Presidency as well.
In the UK, the Institute for Fiscal Studies will publish its ‘Green Budget’, outlining the challenges facing chancellor Philip Hammond as he draws up new tax and spending plans (the real budget is on 8th March).
The Halifax building society is releasing its latest house price figure at 8.30am GMT.
On the corporate front, oil giant BP, travel firm FirstGroup and model maker Hornby are reporting results.