MARKET UPDATE: A Greek Tradgedy

• Greece announces a three-year plan to reduce rising fiscal deficit. However this failed to convince the markets, as Greece’s 5-year CDS widened to 333bps whilst 10-year sovereign spreads widened further.
• The plan proposes to reduce the budget deficit from 12.7% to 2.8% of GDP by the end of 2012, which many view as unrealistic.
• Greece’s deficit is planned to be cut by 4% this year alone; a tall order given the likelihood that the economy will contract this year.
• Greece needs to convince the European Commission but if the negative market reaction is anything to go by it may need further revisions including more drastic spending cuts as well as concrete plans for structural reforms.
• EUR will be hit in the FX markets as a result of the instability in Greece and other Eurozone members Spain, Ireland and Italy. GBP seems to be a beneficiary.
• Rumours of a Eurozone break-up are likely to intensify, but ECB President Trichet dampened speculation that Greece could exit the euro while, on the other hand, confirming that they would receive no special treatment.

Original atricle can be found in full at The Econometer