FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at Bank of Tokyo Mitsubishi UFJ notes that the political situation in Europe looks gridlocked at every turn.

The EU Budget negotiations for the period between 2014-2020 are proving predictably difficult, with France seeking a smaller reduction in farming subsidies. He notes that according to the FT, that is what has happened with CAP getting an additional EUR7.7bln of funds at the expense of funds allocated for infrastructure that had been touted as funds most likely to deliver economic growth. He also notes that the EU budget has left unchanged the money allotted to its 55,000 civil servants.

Despite negotiations resuming today, Chancellor Merkel looks to have given up already, stating that more negotiation will be required in 2013. Halpenny notes that the Greek stance is also proving difficult and despite an agreement scheduled for Monday, a key stumbling block is that offering Greece lower interest rates would take the rate below the funding costs in some countries including Germany which would then mean a fiscal transfer is taking place, which is illegal in the eyes of Germany.

He notes that Greece is projecting a Debt-to-GDP level of 130% by 2020 while the IMF looking for 124%. He finishes by stating “Whatever the details of the deal are, one fact we can more or less guarantee is that the deal will lack credibility. The euro may temporarily gain further early next week on some kind of agreement but it will not be sustainable.”