Investors Waiting For Greek Debt Solution

The euro rose from a ten month low vs. the US dollar as investors speculate that today’s EU summit could result in a solution for Greece’s fiscal problems. Diplomatic efforts in advance of the summit failed to resolve differences over how to aid Greece. France and Germany had held talks in advance of the summit to discuss what role the IMF will play in any Greek bailout. Jean-Claude Juncker, chairman of the euro zone finance ministers met with conservative EU leaders including German Chancellor Angela Merkel and said that he is confident that the EU summit will reach an agreement regarding aid to Greece by Thursday night. Junker stated, “My impression was that we would find an agreement today and now I do believe it really.”  Some currency experts remain pessimistic; Boris Schlossberg of GFT stated, “Some traders are betting European leaders will be able to come up with a solution at this meeting and the euro is responding to that. But frankly, I believe markets are bound for disappointment and the euro is likely to resume declines.”

Portugal Downgraded

Concerns about Greece’s debt sustainability and the debt concerns of other EU nations have pushed the euro down 7% against the greenback so far this year. On Wednesday Fitch’s ratings agency downgraded Portugal’s rating prompting concerns that other EU nations face similar debt problems. Matthew Strauss of RBC Capital Markets stated, “The focus is on the EU meeting, though expectations have been scaled down quite significantly on whether there will be a firm framework for financial assistance to Greece,. Based on recent comments, it seems that’s not going to be the case, and as a result, we’ve seen pressure on the euro.”  All eyes are on the EU summit and there have been conflicting statements from several EU leaders.

Greek PM Says Greece on the ‘Right Track’

The Athens government is hoping that a combination of tax hikes and wage cuts will bring Greece’s deficit to 8.7% of GDP this year. The 8.7% figure is still in excess of EU debt rules but well below last year’s 12.7% figure. Greek Prime Minister George Papandreou told reporters today, “We will move ahead whatever decisions are taken. Greece is determined to deal with its own problems,” he said, adding that “we are on the right track.” Some EU leaders believe that any solution involving the IMF will destroy the credibility of the EU and pressure the euro further. In a statement less than optimistic for those leaders pushing for an EU solution, Germany’s Merkel stated, “A good European is one who abides by the European treaties and national law and thus sees to it that the euro zone’s stability isn’t harmed.”