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While investors are currently taking a breather from stresses in the eurozone, European worries nonetheless hover ominously in the background of all the optimism right now.And as we look forward to the last big European Central Bank liquidity operation for the foreseeable future, many investors are already predicting that we’re on the verge of a reversal in the positive sentiment we’ve seen so far this year.
These next momentous events could fuel or mitigate those worries.
The European Central Bank will announce the results of its second--and at this moment final--three-year long-term refinancing operation, in which banks will receive super-cheap funding on riskier collateral than they have done in the past.
In the first LTRO, they borrowed €489 billion ($655 billion) from the central bank on a three year basis. Analysts currently expect them to ask for a similar amount this time around. The results of this funding exercise will probably have a large impact on market sentiment, which most expect to move negative in the wake of the final LTRO.
Finland votes on the terms of the second Greek bailout. While the Finnish parliament is likely to approve new support measures for Greece, rumblings about Greece not meeting its spending and privatization targets has marred solidarity on the bailout.
EU leaders will meet in Brussels for their latest summit on eurozone worries. The progress of the Greek PSI deal will probably be discussed, however the focal point of the meeting will probably be talks to expand funding for the European Stability Mechanism--the permanent European bailout fund set to go into effect in July.
Right now it has €500 billion ($670 billion) available, but investors have long argued that much more money is needed in order to properly reassure investors that contagion stemming from a Greek default and other shocks is under control. Germany has vehemently promised that this won't happen, however, so what we will likely see is an escalation of intra-eurozone tensions and little progress.
The European Central Bank will make its March decision on interest rates. We'll be looking to hear more about the central bank's outlook on the eurozone economy, and investors will probably be hoping for more activist measures: another LTRO, true QE, losses on holdings of Greek bonds, or perhaps even a commitment to stand behind countries' debts to prevent contagion.
Recent statements by ECB members have implied that the bank does not mean to repeat its generous LTRO programs anytime soon, and the lack of such an announcement could hurt markets.
Greece expects to complete a deal on private sector bond swaps by this date, after extending an offer for bondholders to participate last week.
It needs at least 75 per cent participation to go through with the deal at all, and if it doesn't will hard default on the debts maturing the following week. Greece is likely to receive between 75 and 90 per cent participation, which would give it the option of using collective action clauses to coerce virtually complete participation. This scenario would likely trigger a credit event, where insurance contracts on Greek bonds would be paid out.
Eurozone finance ministers will meet once again, likely to discuss the results of the Greek debt swap deal and continue discussions from the EU summit on the size of the ESM.
This is the big day for Greece.
€14.4 billion ($18.9 billion) in Greek government bonds mature, and they won't have the funds to pay off this debt without the next round of troika aid and a debt swap with private creditors. While the Greek government technically has a week-long grace period to actually pay off their creditors (meaning the date of default could be as late as March 27), we will probably know by this date whether Greece will be able to avoid a hard default.
March 27 marks the end of the grace period on the €14.4 billion ($18.9 billion) in Greek debts maturing on March 20. This is the final date by which Greece could save itself from a hard default if its current plans for a debt swap and troika aid fall through.
Eurozone finance ministers will meet once again. If Greece's debt swap does not go as planned, then they will need to pick up the pieces here.
If it does (as it is likely to), then finance ministers will probably return to ongoing debates about the size and legality of the European rescue funds--the next major hurdles as they muddle through this euro crisis.
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