Standoff between Greece and partners clearly softening

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For Eric Chaney, head of Research at AXA Investment Managers, the Greek saga is not ending.

Today, the Greek government has sent a letter detailing the structural reforms it intends to undertake to the members of the Eurogroup. The Eurogroup and the institutions involved in the bailout of Greece (formerly named the Troika) have reviewed this document and communicated that they ‘consider this list of measures to be sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.

The standoff between Greece and its partners is clearly softening. The tough line taken by most lenders, either in an outspoken fashion (Germany, Spain and Portugal) or more discreetly (France for instance) seems to be paying off. From now on, negotiations will continue until the full review of Greece is completed (by the end of April), euro area countries involved in the bailout of Greece will individually review the agreement – some through Parliaments, some not– further compromises may have to be found and, in the end, the programme will be extended until the end of June.

This will not be the end of the Greek saga, since funding will remain quite challenging until the last tranche of the bailout is disbursed and the interest payments on the bonds held by the ECB are paid to the Greek Treasury. Even once this is done, Greece will still be at pains to generate enough tax income to fulfill its commitments, given the damage caused to the economy by the political turmoil the country has been through since December. While the probability of a ‘Grexit’ scenario has significantly decreased in the last few days, it is still a possible outcome in the next year or so. The two key parameters to watch in the coming months will be the momentum of the Greek economy and its domestic political situation.

 

 

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