Markets now see ‘glass half-empty’

On the second day following the Greek debt agreement, markets posted further modest gains, but continued to worry whether the €86bn bailout accord will stick in the coming weeks, analysts warned yesterday.

The yields on German and Irish bonds eased slightly, European stock indices ended slightly ahead, and, reflecting continuing uncertainty about the Greek deal, sterling gained against the euro.

“European stocks rose 1% across the board, but not by 2% or 3% in any euphoric way,” said Gerard Moore, equities analyst at Investec Ireland.

“Markets on Monday were looking at the deal as a glass half-full. Today, they are looking at it as half-empty because the [bailout] still faces having to be agreed by various European parliaments.”

The fall in the euro, to 70.6p yesterday from 71p, also reflected comments by Bank of England governor Mark Carney, who yesterday warned the time for a UK rate rise was drawing closer.

The yield on the Irish 10-year bond fell slightly to 1.57%. The equivalent German bond also eased, to 0.8%, as the ECB mulls whether to provide more emergency liquidity assistance (ELA) to stricken Greek banks.

The ECB governing council will consider increasing the amount of ELA at its meeting on Monday, but only provided the Greek government and the seven eurozone parliaments or their committees due to vote by Friday approve the bailout deal.

However, Greece’s economy minister Giorgos Stathakis said that while the banks will reopen once the ECB raises ELA, that capital controls will remain in place “for a couple of months”.

Greece needs €4.2bn, including the interest bill, to repay the ECB by Monday, but eurozone ministers have been unable to agree where to find the bridging finance to help them pay it.

A eurogroup committee has been tasked with finding and evaluating the options which are to be discussed during a eurozone ministers’ conference call, probably on Friday.

Meanwhile, a secret IMF study showed Greece needs more debt relief than European governments have been willing to contemplate so far, as Germany heaped pressure on Athens to reform and win back its partners’ trust.

The IMF’s stark warning on Athens’ debt was leaked as Greek prime minister Alexis Tsipras struggled to persuade unhappy leftist lawmakers to vote for a package of austerity measures and liberal economic reforms to secure a bailout.

The study, seen by Reuters, said European countries would have to give Greece a 30-year grace on servicing its European debt, including new loans, and a dramatic maturity extension, or else make annual transfers to the Greek budget or accept “deep upfront haircuts” on existing loans.

The analysis is likely to sharpen fierce debate in Germany about whether to lend more to Greece, while it will be seen by many in Greece as a vindication of the government’s plea for sweeping debt relief. A Greek newspaper called the report a slap in the face for Berlin.