Having come close to the abyss, European leaders seem close to securing a deal on the 2nd Greek bailout. Stop me when that sounds familiar.
Here are some of the latest developments:
From Reuters: The euro zone is putting the finishing touches to a second bailout deal for Greece for finance ministers' approval on Monday, with the focus on how Greece can prioritise debt repayment and ways to ensure Athens implements agreed reforms.
We are almost there, one euro zone official said. Unless someone really comes up with an idea to undermine the whole deal, it should be approved on Monday.
In order to complete the deal, the European leaders would have to close a funding gap seen in the latest analysis of the projections of Greek debt to GDP, even after securing the bailouts.
From Bloomberg: European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said.
Finance ministers wrangled over how to close the funding hole in a teleconference last night after seeing estimates that Greece's debt would fall to 129 percent of gross domestic product in 2020, missing a target of 120 percent, said the people, who declined to be named because the talks are still in progress. Last year, the level was about 160 percent.
Another sign of further movement is that the ECB was preparing to swap its bonds, in an attempt to avoid the bonds it owns being dragged into the PSI talks.
Any profits from the action would be given to national central banks which they can use to sweeten the terms of the PSI deal.
From Bloomberg: The European Central Bank is swapping its 50 billion euro Greek government bond holdings for new Greek bonds, Germany's Die Welt newspaper reported, citing unidentified central bank officials.
The swap will be completed by Feb. 20, Die Welt said in a pre-release of an article to be published tomorrow. The ECB is swapping the bonds at their nominal value, generating a profit because they were purchased at a discount.
The profits will be distributed via national central banks to the governments who can do with them as they please, the newspaper said.
The burst of headlines helped to give a positive tone to risk sentiment, with higher yielders surging higher against the USD and JPY.
Again, we continue to look towards more headlines as we get closer to the new Monday deadline, and the market now digests the implications of the latest move by the ECB. Meanwhile, we'll see if any obstacles come along prior to Monday's meeting to knock back this most recent bout of risk positive sentiment.
Nick Nasad is an analyst, educator, and trader; and one of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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