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So here’s the situation. Greece is now having to vote on the austerity measure it finally agreed to yesterday, agree to and get this done by Wednesday. Meanwhile, the private sector involvement (PSI) deal is meant to be very near completion, something which we have heard many times before. With a 48-hour strike now in train, it’s going to be a tumultuous weekend in Greece. If Greece is still in the euro and/or has not seen a distressed default by the end of March, it would be the more remarkable turn of events.
Between now and Wednesday the PSI deal needs to be agreed so that it can be in place ahead of the March 20th redemption. Furthermore, the IMF will have to take a view on whether this will be enough, or whether (by implication) the ECB will need to take a cut on its holdings of Greek government debt, currently amounting to EUR 40-50bln. It’s a big ask, especially given the glacial speed of progress over the past few weeks. Furthermore, there were few concrete signs of the ECB’s willingness to give ground yesterday, but this may be a tactic to pressure private sector bondholders and Greek politicians to do the right thing now. Markets are feeling decidedly nervous going into the end of the week (Aussie down 1% on the day) and have every reason for being so.
