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Greece-euro zone debt talks turn inconclusive; uncertainty looms larger

The crucial talks between the finance ministers of crisis-hit euro zone and Greece over the country’s prevailing debt situation went kaput on Monday after Athens turned down a proposal to request an extension of its international bailout by six-month, while sticking to the conditions.

The unexpected collapse raised eyebrows over the futuristic prospects of Greece in the single currency zone after a new leftist-led government promised scrapping the bailout package of 240 billion euro, reverse the austerity policies and end cooperation with IMF or EU inspectors.

Dutch Finance Minister Jeroen Dijsselbloem, who was chairing the crucial meeting, said Greece had time until Friday to make an extension request or else the bailout would expire at the month end.

Addressing a press conference, Dijsselbloem said, “The general feeling in the Eurogroup is still that the best way forward would be for the Greek authorities to seek an extension of the programme.”

The talks were expected to last late night, but broke down in less than four hours.

According to a Greek official, Finance Minister Yanis Varoufakis had snubbed a draft statement that was put before him at the meeting.

“The insistence of some people on the Greek government implementing the bailout is unreasonable as well as unacceptable. Those who keep returning to this issue are wasting their time. Under such circumstances, there cannot be a deal today,” the official said.

Ahead of the meet, German Finance Minister Wolfgang Schaeuble had said that the country had been living beyond its means for so long and no appetite was left in Europe that would offer it any more funds without guarantees it was getting its finances in order.

Commenting over the inconclusive Brussels meet, a senior Greek banker said, “Greece’s stance is a very negative development for the economy as well as the banks. The outflows will continue. We are losing 400-500 million every day and that means about 2 billion every week. We will have pressure on stocks and bond yields tomorrow.”

As today’s meeting turned inconclusive, it would be interesting to watch how long Athens succeeds in keeping itself afloat without any global support.

The European Central Bank (ECB) will on Wednesday decide whether to keep the emergency lending to Greek banks bleeding deposits at an estimated two billion euros per week.

Euro Zone: Eyes set on ECB as market awaits decision on bond-buying plan

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All eyes will be set on the European Central Bank (ECB) which is poised to announce its last big policy plan on Thursday for buying the government bonds, attempting to bring life into the waning euro zone economy and fending off the deflation.

The market expectations are exorbitant as the ECB is set to launch a large-scale program of quantitative easing (QE) for printing money to purchase the sovereign bonds, despite severe opposition from Bundesbank of Germany and rising concerns in Berlin that the measure could allow spendthrift nations to loosen their economic reforms.

According to a reliable source in euro zone, the Executive Board of ECB that met on Tuesday has come up with a proposal that the Central Bank should buy 50 billion euros (USD 58 billion) in bonds per month from March.

The policymaking Governing Council, which constitutes 25-member, began meeting at 0800 GMT on Thursday for discussing the proposal. Following the conclusion of the meeting, ECB President Mario Draghi will address a news conference at 1330 GMT to brief the minutes of the meet.

Sassan Ghahramani, CEO of SGH Macro Advisors in New York, said, “I expect they will deliver, and launch a QE program that will be probably larger than 500 billion (euros).”

The New York-based SGH Macro Advisors is engaged in advising hedge funds.

In December, the inflation rate in euro zone turned negative and consumer prices dropped 0.2 percent, which is far below the target of ECB that they should increase just under 2 percent annually.

The ECB has already slashed the rates of interest to record lows and commenced buying private sector assets as well as directed hundreds of billions of euros in cheap loans to banks, hoping that they would lend the money on into the economy and stimulate its further growth.

Euro edges up from 11-year low as investors eye ECB meet this week

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The euro edged away against the greenback on Monday from an 11-year low as anticipations grew among the investors for a crucial meeting scheduled later in the week where the European Central Bank is expected to take some of its boldest steps till today to revive the sluggish euro zone economy.

The economists and market analysts are widely expecting the ECB to launch quantitative easing measures when it meets on Thursday in Frankfurt. However, it’s still not clear that what will be the design of the ECB’s program, how big it will be, or whether it will be seen as sufficient as well as credible measure of the Central Bank.

A news agency poll, published on Monday, showed the traders at the money market are expecting the Central Bank to declare 600 billion of sovereign bond purchases. However, they consider this will not be enough to bring the inflation rate up to target.

The data, which was released on Monday, showed the current account balance of euro zone shrank in the month of November, indicating continued weakening of the European currency, but the market analysts said the single currency could bounce if the Central Bank disappoints with its measures on Thursday.

The euro was trading up 0.3 percent at USD 1.1601 on the day but not far from a trench of USD 1.14595 hit on Friday. The European currency is already down over four percent in January, which is its biggest monthly decline in 2-1/2 years.

Stephen Gallo, European head of FX strategy at London-based BMO Capital Markets, said, “If the ECB disappoints, there is definitely an argument that you would get an immediate covering of euro shorts and it may also lift euro area bond yields.”

Meanwhile, the Swiss National Bank deleted one of the few remaining pillars of support of the euro last Thursday when it surprised markets by abandoning its three-year-old cap on the Swiss currency against the European counterpart. The move also fueled speculation that the Swiss bank was acting in anticipation of extra aggressive easing measures from the European Central Bank.

In a research note, Adam Cole, global head of FX strategy at London-based RBC Capital Markets, said, “Following the SNB action last week, there has been an (unrealistic in our view) build-up of expectations that the ECB could make a BoJ-style “shock and awe” announcement.”

The euro was up 1.5 percent on the day against the Swiss franc, trading at 1.0088 francs. But the European currency has still lost 16 percent against the Swiss franc after the SNB left its cap of 1.20 francs per euro.

Euro Vs US Dollar: Euro hit nearly nine-year low against US Dollar

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The euro on Monday hit almost nine-year low level against the US dollar as the global investors initiated betting on the quantitative easing policy by the European Central Bank (ECB) and the soft manufacturing surveys brought the shares down and sent the crude oil prices to nearly 6-year (or 5 1/2-year) lows.

The euro dropped to its weakest level since March 2006 to as low as USD 1.18605. The Euro Zone currency last traded at USD 1.1926, a drop of 0.6 percent, from late US trade on Friday.

On the other hand, the European shares are also expected to fall, as Britain’s FTSE witnessed falling by up to 0.4 percent and Germany’s DAX and France’s CAC seen dropping as much as 0.2 percent.

ECB President Mario Draghi had said in an interview with German financial daily Handelsblatt (which was published on Friday) that the risk of the European Central Bank not accomplishing its mandate of preserving price stability is looming larger than it was half a year ago.

Commenting upon Draghi’s remarks, Barclays’ chief forex strategist Shin Kadota said, “The market took his comments to mean that he is ready to adopt quantitative easing.”

The financial analysts and economists made forecast that the Euro Zone inflation data (released on Wednesday) will show that the prices dropped 0.1 percent in December, which is the first fall since 2009.

Market watchers believe that this could compel the ECB to ease its policy as soon as January 22, when it will be holding its first policy meeting in the New Year 2015.

The US, which is considered as one of the bright spot in the world economy, witnessed a slowdown in the pace of growth in its manufacturing sector in December.

That led the Wall Street shares end mostly flat during the first trading day in 2015 on Friday.

Oil prices hit a nearly 6-year (or 5-1/2-year) low as growth concerns raised the fears of a supply glut globally.

On the other hand, the Brent crude futures also declined as low as USD 55.36 a barrel, also its lowest level since May 2009, before edging back to USD 55.42, still down a US dollar.

The greenback also emerged stronger against the Swiss franc and sterling, extending a latest bull run as markets betted a relatively healthy American economy that will offer enough room for the rate hike by the Federal Reserve in the middle of this year.

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