European leaders hold a summit in Brussels today against a mixed backdrop of good and bad news on the eurozone’s efforts to escape the debt crisis, with worries about Greece again taking centre stage.
Talks between Greece and its international lenders over the release of the next €2.8 billion tranche of its bailout broke down yesterday. A spokesperson for the troika of the European Commission, European Central Bank and the International Monetary Fund said “significant progress has been made but a few issues remain outstanding”. The disagreement centered on a dispute over how many Greek civil servants had been fired in recent months.
A few hours before the arrival of Greek prime minister Antonis Samaras in Brussels yesterday, the latest statistics in Athens confirmed that the unemployment rate had risen to 26% in the final quarter of 2012. This week figures showed Greece’s economy shrank by about 6.4% last year.
Leaders will today seek to reach a compromise over a controversial bailout for Cyprus, with the island seeking a €17 billion ($22 billion) package as it strives to cut its sovereign debt, on track to hit 145% of GDP. Leaders will debate whether the island needs the full bailout or a more moderate package worth €10 billion.
On the positive side, bulls can point to Ireland’s triumphal return to the global debt markets. Dublin’s €5 billion, 10-year syndicated bond was 2.4 times subscribed, bearing a yield of 4.13%. The deal, completed on Wednesday, marked the first benchmark debt sale by an EU bailout recipient. It also helped push Ireland closer to regaining full access to the global capital markets.
Investors have been baying for higher-yield debt for months, including issuances from the eurozone’s troubled periphery. Ireland was always likely to be the first nation to return to the debt markets. Growth is picking up, with the economy tipped to grow by around 1.3% in 2013.
Dublin’s trailblazing deal has also raised hopes that other, more troubled members of the eurozone could pursue bond issuances of their own. Portugal’s economy contracted by 3.2% in 2012, even faster than the decline of 1.6% in 2011, and by 3.8% year-on-year in the final three months of the year, . But that is not likely to deter investors in the current climate, according to analysts. “Given current market sentiment, we can see Portugal coming to market,” said Mohit Kumar, head of Europe and UK rates strategy at Deutsche Bank. “If they do come to market, I would expect [it] to happen in the next three months, and certainly by the end of the second quarter.”
A successful return to the capital markets would wean Lisbon off troika funding, leaving the country in charge of its own destiny. It would also grant Portugal access in theory to the Outright Monetary Transactions programme drawn up last year by European Central Bank president Mario Draghi.
Italy and Spain, on the other hand, are likely to face tougher conditions in the debt capital markets, analysts said. Political chaos continued to rule in Rome, while investors increasingly view Spain as the eurozone’s biggest systemic problem, Kumar said.
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