If the fallout for Sunday’s Italian referendum is bad for Italian bonds, it might well be worse to one of Europe’s star performers this year: Greece. Greek debt has shrunk hugely to German bonds in the past three months, although all other main European government securities have been widening. Increasing confidence in Greek Prime Minister Alexis Tsipras’s openness to conform to the Troika (International Monetary Fund, European Central Bank, European Union Commission) demands on the Most Recent bailout package, is behind this. The pot of gold at the end of the rainbow could be addition to the ECB’s bond buy program — Greece has long been deducted because it is not rated investment grade. A shift in the rules would be a reward for budget discipline. It has appeared until lately enjoy a long shot, but a tectonic shift in mindset is still underway. A recent item of proof for this can be a comment from ECB policy maker Benoit Couere on Tuesday. According to Reuters, he said that Greece can assert a 3.5 percent primary budget surplus to GDP for years following the current bailout ends in 2018 — that is an important vote of confidence. Such current Greek outperformance might easily unwind to a “no” vote on Italian constitutional reform. As Gadfly has contended, that could cause serious problems not only for Italy, the planet third-largest debtor, but also for other borrowers in the region. The ECB can no doubt set temporary emergency measures in place to contain debt-market turmoil following from the vote. But Greece is still in a delicate situation, along with a prolonged selloff could jeopardize all its hard work back to equilibrium. So while the strong performance in Greek debt makes sense, the debt seems to be expensive, given the big danger that goes ahead. It would require serious determination by Greece to distinguish itself from the inevitable peripheral collateral damage — and establish it can chart its own path. Strap on your seatbelts. This column doesn’t necessarily reflect the view of Bloomberg LP and its owners. Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking business, most recently as main markets strategist at Haitong Securities in London. Sourcehttps://www.bloomberg.com/gadfly/articles/2016-12-02/here-s-a-greek-twist-on-italy-s-referendum-trouble from http://www.nwsuburban-bankruptcy.com/the-trouble-for-greek-funding/
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