Another Greek Debt Write-Down Could be on the Cards
It really shouldn't come as much of a surprise to hear that the EU and IMF have delayed their decision on Greece until next week as their positions remain unchanged.
The EU is unwilling to force investors, the ECB being one of them, to take a hit on the money they have lent to the country. After all, the last round of restructuring meant a large write down for the private investors who will be reluctant to take any further pain.
The standoff is not doing much to help sentiment in the markets which have enjoyed substantial strength so far this week. The real concern is on the part of the IMF. They say that the EU's proposal is to simply extend the time allowed for Greece to repay its loans and that will just prolong the agony.
As far as the IMF is concerned, restructuring, aka a write-down, is by far the best option for Greece to have a chance of meeting its debt reduction targets.
No matter what happens, something has to be agreed next week or Greece will default and that certainly won't do much to improve sentiment.
Once again this puts the focus on the Eurozone. It simply reminds us that any sort of restructuring, similar to the first round, is going to mean another large hit for many European banks. And most banks are already in a very fragile state.
On top of this, investors were reminded last night that all is not over in terms of the negotiations over the US fiscal cliff
Last Friday may have seen smiles across the faces of Republicans and the Democratic President but with Thanksgiving at the end of this week those discussions are likely to lose momentum. A reminder was given by Ben Bernanke last night and that led to a pullback in US indices
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By Simon Denham, 21 November 2012