EUROZONE: The market awaits soundbites from the European Council
meetings next week (March 25-26). John Normand of JP Morgan Chase says
“Europe’s dilemma is clear – it needs a regional liquidity pool but
(Germany) will not fund it. It also has access to a global liquidity
pool (the IMF) but discourages its members from tapping it.” The
situation means that Greece will be forced to borrow money at interest
rates deemed exorbitant. Normand says Europe has 3 options: “1)
formalize aid measures already floated in the press (loan guarantees,
direct bond purchases by with or without German support) persuade Greece
to borrow at current rates (as Ireland did or shorten its maturities on
the presumption that rates will decline significantly if fiscal policy
is tightened or 3) ask Greece to borrow from the IMF.” If Greece does go
to the IMF, the euro could be hard hit, since it will be assumed that
Greece “will sign an SBA in which all options will be discussed,
including debt restructuring and euro exit,” he say.s