Greek markets continue to place the bet on PM Papandreou that he will muster the 151+ votes needed to pass their budget deal as the Greek 10 yr yield is falling to a 3 week low, CDS is tighter and the ASE index is up by about 2% to a 4 day high. EU’s Rehn stepped up his pressure on those possible dissenters by saying “to those who speculate about other options…there is no Plan B to avoid default.” With this said and assuming that the deal passes, the issue of bailout 2 is still a mountain to climb. While it seems that European banks are coming around to some agreement on what would constitute a voluntary rollover, Fitch is saying today “based on the public description of the so called ‘Vienna Plus’ initiative that would entail a ‘voluntary rollover’ of Greek bonds…Fitch would very likely view such a ‘scenario’ as a sovereign default event and place the Greek sovereign rating into ‘Restricted Default’… If it looks like a default, we will rate it as a default.” Thus, the issue is down to semantics but the only thing that matters with this is what the ECB thinks as they’ll decide what to accept as collateral for loans. Also, the ECB continues to separate the fiscal distress of Greece with their fight against inflation as Trichet clearly hinted that rates will rise next week as he said today they are in “strong vigilance mode.”

Category: MacroNotes

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