July 14, 2024

Markets Rise on Optimism About Greek Vote

PARIS — Asset prices were mostly higher in Europe on Wednesday as investors bet that the Greek Parliament would support an austerity plan demanded by international lenders as a condition for providing more funds and preventing a default.

Around midday in Europe, the broad Stoxx Europe 600 Index advanced 1.4 percent and the DAX index in Frankfurt gained 1.5 percent. National Bank of Greece climbed 5.5 percent. Futures on the Standard Poor’s 500 Index expiring in September were slightly higher suggested a modest rise on Wall St at the open. In Tokyo, the Nikkei-225 closed 1.5 percent higher.

Yields on benchmark 10-year Spanish, Portuguese and Greek bonds declined, while safer equivalents issued by Germany and France rose, suggesting investors were switching into riskier securities.

“The rally across markets suggests investors are going into today’s vote expecting a positive outcome,” currency and interest rate analysts at Bank of America Merrill Lynch said in a research note. “This seems justified.”

The main reason for the optimism was that only one member of the governing Greek Socialist Party, Alexandros Athanassiadis, has signaled opposition the package. Another, Thomas Robopoulos, who had previously said he would oppose the measures, declared that he had changed his mind.

Local media, meanwhile, reported that the positions of two or three other party skeptics had softened.

The vote is on approval of a medium-term fiscal strategy for the struggling Greek economy, specifically tax increases, wage cuts and the privatization of more state assets. A second vote is scheduled for Thursday on enabling legislation, for example the timing of the privatizations, especially of the state electric utility.

The votes are critical to unlocking near-term funding, specifically the disbursement of fifth installment of the original €110 billion, or $140 billion, bailout for Athens agreed last year. That instalment would be worth €12 billion and would enable Greece to meet obligations like bond coupon payments in July, while paving the way for a new international lending program to provide financing through 2014. Details of that program would probably be provided by euro area ministers on July 3.

Still, regardless of the votes, some analysts cautioned that the problems for Greece and the euro zone remained far from resolved. Private creditors are still discussing their involvement in a second bailout and many investors think Greece will still have to default.

“Despite the aid package, eventual Greek haircuts may be inevitable, with estimated private sector haircuts of 65 to 77 percent,” Citigroup said in a research report released Tuesday, referring to the writedowns that bond holders will be required to accept.

“In other words, a bailout package addresses the liquidity issue much more than the solvency issue,” Citigroup said.

And two Commerzbank analysts, Benjamin Schröder and Peggy Jäger, said Wednesday that “even if the bills are passed, worries could still linger on for longer, if no broader consensus across Greek political parties forms.”

Article source: http://feeds.nytimes.com/click.phdo?i=e87656d09a002edd4e1dc496c875f276

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