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EuroZone meeting ends without action to fund Greece and European stocks climb?
11/13/2012 4:44 pm EST
Yesterday’s meeting of European finance ministers ended in a complete botch: No approval for the next 31.5 billion euro payout to Greece and public fighting between Eurogroup President Jean-Claude Juncker and International Monetary Fund Director Christine Lagarde.
And yet the German DAX stock index finished up (yes UP!) by 0.01%; the French CAC 40 index rose 0.6%, and the Spanish IBEX 35 climbed 1.7%.
How can this be? The markets seem to have rallied on speculation that the news out of the minister’s meeting was so bad that Spain would soon have to ask for a formal program of bond buying from the European Central Bank.
Yep, it’s another day of black is white, and bad is good from the euro debt crisis.
How bad was the botch? Really stinko even by recent EuroZone standards.
Last night the finance ministers did agree to give Greece two more years to meet its near-term budget targets. Greece will now have until 2016 instead of 2014 to bring its budget deficit down to 2% of GDP. (As you might expect, the meeting broke up without any agreement on how to pay the roughly 30 billion euro cost of moving the deadline. That will be the subject of another meeting on November 20.)
Moreover, the meeting ended without agreement on what to do about Greece’s longer-term debt targets. And this is where the fight broke out between Juncker and Lagarde. At a joint late-night press conference Juncker claimed that there was an agreement to move the deadline for Greece to bring it’s national debt down to 120% of GDP by 2022 instead of 2020. No way, Jean-Claude, Lagarde said. At which point Juncker told reports at the event “I’m not joking.” Cue eye-rolls and headshakes by Lagarde, who said, “In our view, the appropriate timetable is 120% by 2020….We clearly have different views.”
Everyone knew that the Troika representing Greece’s rescuers was deeply divided on the issue of the sustainability of the country’s debt even after the most recent round of austerity. But no one expected the disagreement to go quite so public.
The news was so bad, it seems, that it set off another round of rumors that Spain was about to file a formal request for a European Central Bank program of bond buying. That was enough to push the yield on the Spanish benchmark 10-year bond down four basis points (100 basis points make up one percentage point) to 5.85%. And that produced the end of the day rally in European stocks. (I think there’s zero chance of a Spanish request before the November 25 elections in Catalonia. That vote is essentially an unofficial referendum of Catalonia leaving Spain. The Madrid government is expected to lose that vote badly but I’m sure Spanish Prime Minister Mariano Rajoy doesn’t want to make things worse by pushing the very unpopular bailout request before the election. And with Spain having recently completed its financing needs for 2012, I’d say there’s a 95% chance that any request to the ECB won’t come in 2012.)
Apparently, after a successful auction of short-term debt by Greece today no one is worried about a Greek default on Friday.
Time enough to worry next week.
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