Daily Market Report - 20/02/2015

The Dollar remained relatively flat yesterday despite fewer Americans than forecast filed applications for unemployment benefits last week, showing the labour market is making progress. Employers are holding on to workers amid gains in household purchases, the biggest part of the economy. The improvement in the job market, coming off its best year for hiring since 1999, was noted by Federal Reserve policy makers at their January meeting as they debated when to begin raising interest rates.

Germany yesterday rejected a Greek request for a six-month extension to its Eurozone loan programme. The rejection came despite the European Commission calling the Greek request "positive" only minutes earlier. Greece had sought a new six-month assistance package, rather than a renewal of the existing deal that comes with tough austerity conditions. However, a German finance ministry spokesman said the new plea was "not a substantial proposal for a solution".

The Greek request letter includes a pledge to maintain "fiscal balance" for a six-month period, while it negotiates with Eurozone partners over long-term growth and debt reduction. The Greek government was also reported as saying that its extension proposal was in order to give Athens enough time, without the threat of "blackmail and time deficits", to draw up a new agreement with Europe for growth over the next four years.

The German finance ministry spokesman said the Greek request was an attempt at "bridge financing, without meeting the requirements of the programme. The letter does not meet the criteria agreed upon in the Eurogroup on Monday." But shortly before the German rejection of the proposal, a European Commission spokesman said that Commission president Jean-Claude Juncker regarded the letter as a "positive sign, which, in his assessment, could pave the way for a reasonable compromise in the interest of the financial stability in the euro area as a whole".

The main problem between Greece and Germany is an ideological one: Athens wants to stop saving and start spending to get out of the crisis. But Berlin believes that's exactly what caused the crisis in the first place, and remains convinced that the only path to long-term economic health is to make Greece more competitive. To make matters worse Berlin is clearly frustrated by Greece's negotiating tactics. 

There is, however, also a lot of sympathy in Germany for the plight of Greek people. And an awareness of the importance of keeping Greece in the Eurozone. But increasingly it seems, not at any price. Friday's vote on the Greek proposals must be unanimous. If no agreement appears likely before the ministers gather, the meeting could be postponed.

Key Announcements:
GBP- 09:30 : UK Retail Sales (Jan) expected to rise to 5.9% from 4.3%

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