No solution for Greece yet

The Greek debt situation is still very much in focus. Yesterday evening it was known that Europe del

(20.06.2011) The Greek debt situation is still very much in focus. Yesterday evening it was known that Europe delays a decision on new emergency loans to Greece. The next payment of the existing rescue package is also delayed. In the meantime the Greek prime minister is working intensively to try to get new austerity measures to be approved by the Greek parliament.

By Camilla Viland, Analyst at DNB Markets

The Greek debt crisis is still in focus. Previously Germany has demanded that private holders of Greek bonds must carry some of the costs connected with a new Greek rescue deal. However ECB has opposed any such agreement that are not completely voluntary from the investor's side. France has supported ECBs view.

It does now however seem like Germany is about to soften their stance on this issue. After a meeting with Germany's Angela Merkel and France's Nicolas Sarkozy on Friday, Merkel said Germany wants private investors to contribute in a deal, but that such participation should be voluntary. One large hurdle towards a new Greek bail out deal does, thus, now seem to be out of the way. Merkel and Sarkozy also said they were hoping to reach an agreement for Greece as soon as possible.

Yesterday evening it was however known that EU will delay a decision on new emergency loans to Greece until July. Euro-Zone finance ministers also postponed a final decision on paying out the next tranche in the existing rescue deal until Athens has decided on a new set of austerity measures. Greece has large debt maturities in July and urgently needs the money to avoid a default.
 
In the meantime the Greek Prime Minister, George Papandreou, is working intensively to try to get new austerity measures to be approved by the Greek parliament. The package includes a radical privatization plan agreed with the EU and IMF.

The opposition against Papandreous and his plans has increased lately, both within the Greek public and within his own party. As a result, Papandreou has reshuffled his cabinet. Former defence minister, Evangelos Venizelos, will become the new finance minister. Venizelos is known as one of the heavy weights in the ruling party. George Papaconstantinou, who has had the position until now, will move to the environment ministry. Papaconstantinou is the one who handled negotiations with EU and IMF about the EUR 110 billion rescue deal last year and he is also known as "the brain" behind the already implemented austerity measures. The foreign, interior, labour and justice minsters were also replaced. Papandreou hopes that the new cabinet will gain more support than the prior and that they as a result will manage to agree on a new set of austerity measures. The Parliament is currently discussing Papandreous' austerity measures. Papandreou yesterday urged the politicians to approve his plans and to support his new cabinet. If he fails, EU has made it clear that no new aid will be released.
 
Another factor that has weighed on the market lately is fears regarding a slowing global economic recovery. In general key figures have disappointed lately and the Michigan consumer confidence index released on Friday was no exception. The index fell from 74.0 in May to 71.8 in June. Consensus had expected an outcome of 74.0.  The decline is probably due to falling stock markets, weak housing markets and the weak development in the labour market
 
DNB Markets own MacroScore underline this impression that the economic development has been poorer lately. In May we made 14 downward revisions. This month twelve indicators were revised down. Only to indicators were revised up. Our total Macroscore has, as a result, fallen from 0.3 in April to -0.125 in June. This suggests growth somewhat below trend. (0= trend) Norway still has the highest score, followed by Sweden and the EMU. China, USA, UK and Japan all have negative scores.