J.P. Morgan report sees ‘light at the end of the tunnel’ for Greece

11 April 2017
262 Views

The decision reached by Eurozone finance ministers in Malta concerning Greece increases the chances of a solution for completing the second review of the Greek programme before May 22, according to a report by J. P. Morgan released on Monday.

The U.S. banking and financial services giant said the decisions appears to have clarified most of the obstacles that were delaying talks for concluding the review and point to a higher possibility of a good outcome for Greece.

J.P. Morgan’s central scenario, to which it gives an 85 pct probability, predicts that the next step will be the return of the institutions’ missions to Greece to finalise the technical details that will support a staff-level agreement (SLA).

If its predictions are correct, the report said, there will be great progress over the next few weeks, while the sequence of events will be the signature of the SLA, passing of the measures agreed by the Greek Parliament and the completion of the review ensuring future disbursements and further details on debt relief measures.

As a part of this positive scenario, J.P. Morgan said, it was also expected that Greece will become eligible for inclusion in the ECB’s quantitative easing programme in the summer.

“We give an 85 pct probability to this development. This is the most positive result for the Greek bond market and we expect that 10-year Greek bonds will have price/yield rations of about 85 euros/5.5-6 pct with this scenario,” the report says.

Even if the worst of the three scenarios it has drawn up should be proved right, J.P. Morgan said that an accident leading to Grexit was extremely unlikely after last Friday’s decisions and that in its medium-term outlook on Greek bonds “the reward for the risk remains attractive.”

It notes that some form of agreement between the International Monetary Fund (IMF) and Germany will be needed regarding more specific commitments on the part of the European creditors for measures to ease Greece’s debt and more sustainable long-term primary surplus targets, with the 3.5 pct of GDP target remaining for only a limited period after 2018. If this happens, the report noted, Greece will be in a good position to conclude an agreement, even before the Eurogroup on May 22.

It gives a 12 pct probability to a “bad result” for Greece, where talks will continue until the deadline for Greece to repay debt installments in July. This could arise if Germany and the IMF are unable to bridge their differences or if some SYRIZA MPs refuse to vote for the measures called for in the agreement, J.P. Morgan said. Such a stand-off will likely be resolved in mid-June, with the Greek government finally accepting a “take it or leave it” offer to avoid default.

In its third and worst result, to which it gives a 3 pct probability, J. P. Morgan sees the risk of Grexit reappearing with Greece entering a new period of volatility similar to 2015. A new centre-right government could possibly avoid default with the assistance of Europe but the economic repercussion would be dire, the report said.

You may be interested

Giannis Antetokounmpo never forgets his roots
GREECE
shares47 views
GREECE
shares47 views

Giannis Antetokounmpo never forgets his roots

makis - Feb 19, 2018

In an interview with ESPN, Giannis Antetokounmpo, known as the “Greek Freak” due to freakish athletic abilities and his prowess…

FYROM PM: Name dispute with Greece to be resolved by July
POLITICS
shares50 views
POLITICS
shares50 views

FYROM PM: Name dispute with Greece to be resolved by July

makis - Feb 19, 2018

The Prime Minister of FYROM, Zoran Zaev effectively announced that his country will have reached an agreement on the name…

Bloomberg: Greece will not receive € 5.7bln tranche at EuroGroup today
FINANCE
shares85 views
FINANCE
shares85 views

Bloomberg: Greece will not receive € 5.7bln tranche at EuroGroup today

makis - Feb 19, 2018

Greece is not expected to receive the Eurogroup approval today for the € 5.7 billion disbursements, as there are still…

Leave a Comment

Your email address will not be published.