Trader Talk

More Greek Deadlines Today and Tomorrow

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Another day, another Greek deadline: Today, the Greeks have to:

1) Produce written commitments from the two main party leaders that they plan to stick to the austerity program after Greek elections in April; and

2) detail how it will cut an extra 325 million euros ($428 million) euro zone finance ministers insist be cut before the second bailout money — 130 billion euros, or $171 billion — is released.

Even if the Greeks deliver on the two above demands, the money may not come immediately. The Dutch, the Finns, and the Germans will have to provide political ratification for the bailout. The Germans are scheduled to discuss and possibly vote on the deal on Feb. 27.

The Europeans have good reason to be wary of giving all of the 130 billion euros to Greece in a single payment. This quote from New Democracy party leader Antonis Samaras was widely circulated yesterday: “I am calling you to vote for the new loan agreement because I want to avoid falling into the abyss, to restore stability, so that we can have the possibility tomorrow to negotiate and change the policy that is being imposed upon us today,” he told parliament. “[T]o negotiate and change the policy that is being imposed on us today.”

That’s why the Europeans don’t trust the Greeks.

Another deadline looms tomorrow: A Eurogroup meeting is scheduled to approve the Greek austerity bill, and also the private sector debt swap (PSI), but there is still no agreement on that. The euro zone meeting will amount to nothing unless Greece delivers on the two demands above.

There's is also supposed to be an assessment of Greece's debt sustainability from the “troika” (European Union/International Monetary Fund /European Central Bank ). They have been shooting to reduce Greece’s debt burden from 160 percent of gross domestic product to 120 percent by 2020.

Good luck on that: The simple truth is no one has a clue what the Greek GDP is, even for this year. Greek GDP dropped by 7 percent on the year in the fourth quarter of 2011.

Meanwhile, talk is turning to building a stronger firewall around the remaining EU members. On Feb. 25, finance ministers from the Group of 20 industrialized nations meet in Mexico City. The IMF’s Christine Lagarde has argued that it would be easier for her to raise more funds from fund members if the EU could come up with more money. The EU’s rescue fund, the European Stability Mechanism, currently is capped at 500 billion euros ($658 billion).

Is there ever going to be a Greek deal? EU leaders meet on March 1. There’s your deadline for another announcement.


1) German sentiment improves dramatically: The ZEW survey of German economic sentiment rose from minus 21.6 in January to 5.4, a much bigger jump than expected.

2) Italy sees fair demand at a debt auction, driving its borrowing costs lower. Italy sold 6 billion euros ($7.9 billion) of three-year, four-year, and five-year bonds with the yield on its November 2014 bond dropping to 3.41 percent, its lowest in almost a year. The sale had a bid-to-cover ratio of 1.4 times and came just hours after Moody’s cut Italy’s credit rating one notch. The debt sale puts Italian bond issuance settled this year at 35.4 billion euros ($46.9 billion), a third of the 90 billion euros ($118 billion) of maturing debt the country must repay or roll over between February and the end of April.

3) Mixed earnings reports:

Masco falls 7.4 percent pre-market after yesterday reporting a wider-than-expected loss in the fourth quarter. The home improvement company warned it’s heading into 2012 with cautious optimism and said it remained concerned about economic conditions in Europe.

InterContinental Hotels down 1.3 percent pre-open after the hotelier reported 2011 operating profit up 26 percent to $559 million, boosted by a recovery in the U.S. and a handful of new Chinese hotel openings. The company, which owns Crowne Plaza and Holiday Inn, said business is improving in the U.S. due to a healthier economy and job creation in a region that makes about two-thirds of the hotelier’s profit. The company expects 2012 to benefit from emerging market demand, especially in China.

Michael Kors Holdings surges 16.2 percent pre-open after the fashion company beat analysts’ third-quarter expectations. The company posted third-quarter earnings per share of $0.20, versus the Street’s $0.09 view. Michael Kors made a strong market debut in December when it priced at a higher-than-expected $20. Its shares jumped more than 36 percent in the third quarter.

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