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Eurozone crisis live: Greek bondholders close to deal with government

All eyes are on Greece today, where private holders of Greek bonds resume talks with the government on debt restructuring

Today’s agenda

9.45am: City analysts have been crunching through the UK unemployment data. They’re surprised that the claimant count didn’t show a sharper rise in people signing on for work.

But if the month’s picture is murky, the long-term trend is clear – higher unemployment through this year as the economic struggles continues,.

Here’s some early reaction (hat-tip Reuters):

Brian Hilliard of Société Générale:

It’s very surprising the claimant count has not only been revised down (for
November) but hardly risen at all. It seems inevitable that unemployment is going to rise quite strongly.

There is something strange going on and it’s a genuine puzzle why the count is so low.

Ross Walker of RBS:

Overall, there’s a slightly softer feel to these figures. The labour market is struggling and forward-looking indicators such as vacancies and hiring intentions suggest it’s going to be rocky in the first half of this year.

The fall in full-time employment is the key figure and you’ve got a bit of an offset from part-time workers, but the underlying trend just looks a little bit
weaker.

And Joel Hills of Sky News has spotted an interesting statistic that shows how industrial unrest is growing:

@joelhillssky: 988,000 working days lost due to strike action in November – highest since 1989. A sign of things to come.

9.34am: And here are the UK unemployment numbers, a mixed bag as usual. The number of people out of work rose 118,000 in the three months to November to 2.685 million, a 17-year high. The jobless rate rose to 8.4% of the workforce. But in December claimant counts rose by 1,200 – less than the 10,000 expected by economists.

9.08am: It’s not all about Greece, of course, and over in Hungary the prime minister, Viktor Orbán, is said to be willing to negotiate with the European Union in the dispute over new laws which the EU says breaches its treaties.

The battle between Brussels and Budapest intensified on Tuesday when the EU’s executive branch began legal proceedings to overturn the measures.

The German newspaper Bild quotes the Hungarian PM as saying his government is “open and ready to discuss all problems the EU commission brings to us on the basis of serious arguments”.

He said he was willing to accommodate demands made by the EU on the independence of Hungary’s central bank:

Now it is just a matter of whether the financial council should be increased. If the EU has problems with that, we will willingly accommodate the demands. Even if it is to the detriment of the central bank.

Hungary continues to seek aid from the EU and the International Monetary Fund.

8.28am: The relentless rise of overnight deposits at the ECB continues apace, with yet another new peak of €528.2bn, up from €502bn.

New records have been set almost daily in the weeks since the ECB pumped almost €500bn of cheap loans into the financial system in an attemp, so far unsuccessful, to avert a new credit crunch.

As my colleague Graeme Wearden pointed out on Tuesday, the European Central Bank has denied that the banks who took these loans are now simply lending the money back to the central bank. However, the data is a sign of unease in the financial system, with banks clearly happier to leave their excess capital in the ECB’s vaults (where it will attract a very low interest rate) rather than engaging in the risky activity of lending to each other or to the wider economy.

8.18am: Trading is under way in London equities and the FTSE 100 is currently trading around 22 points lower, or 0.4%, at 5671.

8.18am: According to the New York Times, Greek prime minister Lucas Papademos is considering legislation to force the country’s creditors to take losses on their holdings if no agreement can be reached.

In what the NYT called “a wide-ranging, 90-minute conversation” – his first with a newspaper since he came to office in November – Papademos also called on Greek politicians to pass the economic measures demanded by Greece’s foreign lenders in exchange for bailout aid, saying vested interests with political ties had helped to block the changes needed to revive the country’s rigid and moribund economy.

Papademos said that if Greece did not receive 100% participation in a program in which bondholders would voluntarily write down 0bn from Greece’s 0bn debt, the country would consider passing a law to require the holdouts to take losses.

“It is something that has to be considered in the light of expectations about the degree of the participation to be achieved,” he said.

“It cannot be excluded. It is contingent on the percentage.”

As we said earlier, it’s a game of brinkmanship.

8.01am: Garvey highlights the tricky issue of where the ECB, which holds about 18% of Greek government bonds, would sit in this scenario.

The European central bank “is very quiet on this front ,” says Garvey, “but watch this space carefully as any haircut on ECB holdings could have an adverse effect on their appetite for future SMP [the ECB's Securities Markets Programme] intervention. In our opinion the ECB should share in the haircut, but probably won’t due to likely negative implications for the SMP programme.”

7.52am: And Padhraic Garvey at ING points out that the 68% haircut is significantly above the 50% that was under consideration (and a multiple of the 21% haircut agreed as part of the very first restructuring deal). The deal would be “a huge hit” for investors, he says:

The big question is how this can be a truly voluntary deal. The size of the haircut under consideration makes free-riding the deal worth the risk, in the
hope that those bonds that don’t take part in the restructuring get redeemed at par (which must be the case if this deal is really voluntary).

The latest twist on this is the notion that if enough bond holders take part in the voluntary restructuring, then the legal conditions underlying the bond could be changed so that an effective collective action clause is triggered.

This would make the restructuring compulsory, and would end the free rider annoyance. It would then trigger CDS, as it would have to be classed as a credit event, which would make eminent sense given the size of the haircut, and in our opinion would not be a huge problem for the market with a
net notional €4bn outstanding.

7.43am: Here’s more, again from Bloomberg, on Fitch’s view of a likely Greek default.

“The country is insolvent and probably won’t be able to honor a bond payment in March, Fitch Ratings Managing Director Edward Parker said on Tuesday.

Greece is unlikely to be able to honour a 20 March bond payment of €14.5bn, according to Parker, and efforts to arrange a private sector deal on how to handle the country’s obligations would constitute a default, he said.”

7.40am: Some early reaction to reports of the Greek deal from Gary Jenkins at Swordfish.

Let’s start off with the Bloomberg report that Greece is close to a deal with regard to the PSI debt restructuring which will result in a write down of some 68%. Of course “close” does not mean ‘signed, sealed and delivered’ so I am sure we are all waiting for confirmation from the IIF and the Greek government before breathing a big sigh of relief.

The exact details of any agreement will also be very interesting to read and not only from a Greek debt perspective. The contagion aspect of this deal has not gone away and no doubt there are some investors who are concerned that if the economic situation in certain countries deteriorates then the Greek deal could be used as a template for others.

And if I was a Portuguese politician I might be looking at the large write off of Greek debt and thinking that I could do with some of that. Still, anything that reduces the risk of a Greek disorderly default has to be good news in the short term.

7.38am: Here’s today’s agenda:

• Greece’s debt talks resume

• Prime minister David Cameron meets Italian prime minister Mario Monti in London to discuss the eurozone crisis (3pm)

• Debts auctions from Portugal and Germany

• UK unemployment (9.30am)

• US producer price index and industrial production (1.30pm)

• Goldman Sachs fourth-quarter figures

7.37am: And there’s more gloom on the global economy, this time from the World Bank, which has slashed its growth forecasts and warned that the crisis in the eurozone will lead to a sharp slowdown in growth in rich and poor countries this year and could spiral into a rerun of the 2008-09 recession.

The Washington-based institution said the world had “entered a very difficult phase characterised by significant downside risks and fragility”. The bank lowered its forecast for global growth in 2012 from 3.4% to 2.5% but said governments should be preparing for a downturn as bad as that which followed the collapse of Lehman Brothers in 2008.

“An escalation of the crisis would spare no one,” said Andrew Burns, manager of global macroeconomics at the World Bank and the report’s author.

7.36am: In overnight news, a major shock stateside with the resignation of Jerry Yang, the 43-year-old co-founder of Yahoo. He has quit his position on the company’s board after 16 years, including his reign as chief executive between June 2007 and January 2009 – a reign that included disastrous decision – from Yahoo shareholders’ point of view – to reject a .6bn (£29.1bn) takeover offer from Microsoft in February 2008. Yahoo’s now worth around bn.

7.33am: Bloomberg quotes Bruce Richards, a hedge fund manager on the creditors’ committee:

“I’m highly confident the deal will get done,” said Richards, chief executive officer of New York-based Marathon Asset Management.

The optimism gave a lift to shares across Asia this morning but there are plenty of unanswered questions and the markets will believe it when they see it. Ratings agency Fitch has said that Greece is certain to default and that , even if a deal can be thrashed out, it may still be regarded as a default.

European equity markets are being called lower, with spreadbetter IG Index expecting the FTSE 100 to open around 20 points lower.

7.30am: Good morning and welcome to another day of our rolling coverage of the Eurozone debt crisis.

All eyes are on Greece today, where private holders of Greek bonds resume talks with the government on debt restructuring. The Institute of International Finance, which represents private creditors, will be thrashing out just how much of a hit – “haircut” – its members must take if the restructuring is to go through.

It’s a game of brinkmanship but there are suggestions this morning that a deal may be close. According to a Bloomberg report, the debt-laden nation is nearing a deal with private creditors that would give them cash and securities with a market value of about 32 cents per euro of government debt.

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