Greece was the focus of talks in Brussels, where EU finance ministers voiced their concerns about an offer made by private sector holders of Greek debt. Luxemburg's PM Junker offered the most down-cast assessment, when he stated that Greece's program is off track, also saying that coupon's on bonds maturing before 2020 should be well below 3.5% and below 4% over the full 30 year period.
Currently, the IIF is proposing an average coupon rate of 4%, which they say is the least they can accept if they are to write-down the nominal value of their debt by 50%. However, they will have to accept a lower coupon rate if they want to receive the next round of austerity measures before Athens has to re-finance a large bond on March 20, which if not met would constitute a default by Greece and could be catastrophic for risk assets globally.
Furthermore, Dutch Finance Minister Jager stated that the current plan presented by the bond holders, represented by the IIF, would cause Greece's debt to remain above targeted levels. A key concession for any austerity package is a debt reduction plan that brings Greece's debt to GDP to a more sustainable level, which is deemed to be 120% or below in 2020 and involves a debt reduction of around EUR 100 billion.
Eurozone finance ministers also discussed tighter fiscal controls for European nations and steps to finalise the ESM. It is now confirmed that the rescue fund will be brought forward to July, and the Financial Times reported that Germany has done a black-flip on beefing up the Eurozone rescue funds, stating that they would support a plan allowing the EFSF and ESM to operate conjointly if new fiscal reforms were part of the plan, but the reports were denied by one of her spokesmen.
The BOJ released their growth forecasts for 2012 /2013, which were largely unchanged at 2.0% for FY2012 and 1.6% for FY2013 (previous forecasts were 2.2% and 1.5% respectively). At the same time, the bank stressed that the European debt crisis is holding back global growth, this is clearly not surprising but it does highlight how nervous policy makers are in Asia when it come to the situation in Europe. Earlier, IMF Chief Lagarde urged the 17 Eurozone countries to deal with the crisis that is threatening to drag the world in a 1930's style depression.
Following the meeting the Brussels, risk assets and the euro managed to avoid immediate sell-offs. However, as the situation sunk in, the euro shot below 1.3000 and AUD/USD was pushed below 1.0500. So, it looks like the short-term future of risk assets will remain interlinked with the ability of Greece to secure its next austerity package. Whilst price action doesn't look like a Greek default has been priced in, traders are concerned about the slow progress of Greece and the IIF in developing a plan that will allow Athens to remain above the water line.
Ahead in Europe, we have the release of French, German and Eurezone PMI figures at 19:00, 19:30 and 20:00 AEST respectively.
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