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 The market's assumption this week has been that a deal would
eventually be reached after European officials said on Monday and
Tuesday a proposal from Greece was a good basis for talks.
No progress has been achieved after that proposal and negotiations
stumbled on Wednesday, with euro zone finance ministers accusing
Greece of refusing to compromise ahead of a deadline next week when
an International Monetary Fund loan tranche of 1.6 billion euros
comes due.
The creditors will now put forward their own proposal for a
cash-for-reforms deal - on the basis of an offer agreed on in Berlin
at the beginning of June between Germany, France, the European
Central Bank, the International Monetary Fund and the European
Commission.
The revised proposal, seen by Reuters, extends the deadline by which
Greece would have to completely phase out a pension supplement,
called EKAS, by two years to 2019, compared with the previous
position of the creditors. The creditors also agreed that a value
added tax reform that scraps lower VAT exemptions for islands and
raises VAT on restaurants and hotels could be reviewed at the end of
next year.
"The market is 100 percent being driven by headlines on Greece. The
latest move seem to be pointing towards a higher chance of an
agreement towards the weekend. There's an urgent need for a deal as
Greece is approaching a kind of hard deadline," said DZ Bank
strategist Felix Herrmann.
The pan-European FTSEurofirst 300 index was up 0.2 percent at
1579.43 points, having been down half a percent earlier. Yields on
top-rated German 10-year Bunds, which set the standard for euro zone
borrowing costs, rose 4 basis points to 0.88 percent, having traded
as low as 0.82 percent earlier.
The differences between Greece's proposal and that of its creditors
are not big enough to justify failing to reach an agreement, a
senior Greek government official said.
Greek officials say without a deal the country does not have the
money to pay the IMF on Tuesday. A default may trigger a bank run
and may push the country out of the euro.
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"Today is another day that will be all about Greece," said Anders
Svendsen, chief analyst at Nordea.
Yields on Europe's lower-rated bonds in Spain, Italy and Portugal
were steady. The three countries are seen as the most vulnerable to
contagion from Greece.
EURO HOLDING UP
The dollar index, which tracks the greenback against a basket of six
major rivals, was flat at 95.285.
The euro was down slightly at $1.1196, showing less responsiveness
to the Greek crisis than the bond and stock markets. Some
strategists say the market has been using the euro as a funding
currency for carry trades, in which investors borrow euros and sell
them to buy higher-yielding currencies.
"What has been fairly clear is that every time there's a chance of a
deal the euro plummets, and every time there's disappointment coming
along, it reverses course," said Neil Mellor, FX strategist at Bank
of New York Mellon in London. "The only interpretation you can place
on that is that the market is looking to use the euro as a funding
currency in a carry trade ... The prerequisite of a carry trade is
relative stability, so if a Greek deal is on, you sell the euro."
The Swiss franc sank to a 10-day low against the euro after the head
of the Swiss National Bank warned it was considerably overvalued and
that the bank would continue to intervene in currency markets.
In commodities trading, crude oil prices steadied just above $60 a
barrel, while spot gold edged higher.
(Additional reporting by Jemima Kelly and Emelia Sithole Matarise in
London; Editing by Alison Williams)
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