A sense that a repeat of Greek 2015 crisis can be avoided - BBH


Analysts at Brown Brothers Harriman explained that with the official creditors on their way back shortly to Athens, there is a sense that a repeat of 2015 crisis can be avoided.   

Key Quotes:

"There is a collective sigh of relief.  The generic two-year yield was pushing around 10% in the last couple of weeks and now is at 8.16%, the new low for the month.  The generic 10-year yield reached 8.1% at the end of last week and is now 7.22%, also new lows for February.

To be sure, Greece is not getting another tranche of aid, but it doesn't really need it until closer to July when a large debt servicing bill comes due.  Still, there is appears to be a window of opportunity, and several European finance minister wants to shift the focus from budget cuts to structural reforms.  The tax system, pensions, and the labor market are the focus of such efforts.  

However, reports suggest that if the pressure on Greece is somewhat less, it may intensify on Italy.  As early as tomorrow, the EC may press Italy harder, and perhaps even threaten action if it does not implement measures to reduce its debt.  Italy's debt-to-GDP ratio reached 132.8% last year and is set to rise to 133.3% this year if everything goes according to plan.  Ironically, there may be concerns Italy's debt is not sustainable, but the EC argues against the IMF that Greece's debt (~180% of GDP) is sustainable.  

Earlier this month, Italy promised measures to reduce its structural deficit by 0.2% of GDP.  The measures are to be implemented by the end of April.  The soon-to-be-issued warning is a reminder of Italy's commitment.   Italy's structural deficit appears to be moving in the wrong direction.  It was 1.0% (of GDP) in 2015 and rose to 1.6% last year.  It is set to rise to 2.0% this year and 2.5% next year.  

The chart below was compiled by Thomson Reuters.   It shows the projections of primary budget balances for EMU members according to the EC.  This is a different measure than the structural deficit.  The primary balance is the budget balance excluding debt servicing costs.  

There are four countries that seem problematic but do not appear to be the subject of much pressure.  France sticks out like a sore thumb.  It is the only eurozone member where a larger primary budget deficit in 2018 than this year is forecast.    

Note Finland, Spain, and Estonia also continues to record primary deficits.  There may be several reasons why Spain is growing faster than Italy.  Often Rajoy's labor reforms and the earlier efforts to address the bank system problems are cited.  Spain's primary budget deficit this year is in a modest deficit, while Italy is expected to report among the largest primary surpluses among EMU members this year."

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD recovers above 0.6750 after Australian jobs data

AUD/USD recovers above 0.6750 after Australian jobs data

AUD/USD picks up a late bid and recovers above 0.6750 in Asian trading on Thursday, following the release of mixed Australian employment data. The extended post-Fed US Dollar recovery, amid a cautious market mood, could limit the pair's upside ahead of US data. 

AUD/USD News
USD.JPY jumps toward 144.00 on the road to recovery

USD.JPY jumps toward 144.00 on the road to recovery

USD/JPY gains traction and approaches 144.00 in Thursday's Asian session. The uptick of the pair is bolstered by the impressive US Dollar recovery. Investors shift their attention to the US data and the Bank of Japan interest rate decision on Friday. 

USD/JPY News
Gold price remains on the defensive amid the post-FOMC USD recovery from YTD low

Gold price remains on the defensive amid the post-FOMC USD recovery from YTD low

Gold price struggles to lure buyers despite the Fed’s jumbo interest rate cut on Wednesday. A further recovery in the US bond yields underpins the USD and caps the non-yielding metal. Concerns about an economic slowdown, along with geopolitical risks, help limit the downside.

Gold News
Ethereum attempts recovery following first rate cut in four years

Ethereum attempts recovery following first rate cut in four years

Ethereum is trading above $2,330 on Wednesday as the market is recovering following the Federal Reserve's decision to cut interest rates by 50 basis points. Meanwhile, Ethereum exchange-traded funds recorded $15.1 million in outflows.

Read more
Australian Unemployment Rate expected to hold steady at 4.2% in August

Australian Unemployment Rate expected to hold steady at 4.2% in August

The Australian Bureau of Statistics will release the monthly employment report at 1:30 GMT on Thursday. The country is expected to have added 25K new positions in August, while the Unemployment Rate is foreseen to remain steady at 4.2%.

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Forex MAJORS

Cryptocurrencies

Signatures