Greek Skeptics Say Market Rally Masks Lingering Risks of Failure

While European markets show signs of optimism that Greece can reach a deal with its creditors as soon as this weekend, not everyone is ready to call time on the saga.

Fitch Ratings’s global head of sovereigns says the two sides remain far apart. And strategists at Societe Generale SA still see a 65 percent chance that Greece will leave the euro.

Markets rallied on Friday after Greece’s request for a bailout on terms similar to ones its creditors had asked for. The euro, the Stoxx Europe 600 Index of equities and peripheral euro-area bonds rose on speculation an accord would be reached by the European Union’s Sunday deadline.

“Even with the program that we saw submitted last night, we think it’ still going to be quite difficult to reach an agreement,” Fitch’s James McCormack said in a Bloomberg Television interview. “The two sides are further apart than ever. In the Greek economy the hole that they’ve been digging is deeper now so the adjustment on the fiscal side is going to have to be that much bigger.”

Greece’s measures addressed longstanding creditor demands including spending cuts, pension savings and tax increases. The nation is also proposing a debt restructuring, a point of contention between the parties. To open negotiations for a new Greek program, six countries need to get parliamentary approval including Germany and the Netherlands.

Euro Bears

The euro strengthened 1.3 percent to $1.1176 at 2:47 p.m. in London, while the Stoxx 600 Index rose 1.9 percent. Portugal’s 10-year yield tumbled 13 basis points, or 0.13 percentage point, to 2.80 percent.

Barclays Plc still sees a Grexit, or Greek exit from the euro, as its base-case scenario after voters chose to reject austerity demands in a referendum on July 5, said fixed-income strategist Cagdas Aksu.

If the so-called Eurogroup of finance ministers can strike an agreement on Saturday, then leaders may not need to gather as planned on Sunday, according to a European Union official.

“Whatever the outcome of the Sunday euro summit, uncertainty seems certain to persist and we still put the odds of eventual Greek exit from the euro area at 65 percent,” SocGen analysts led by Vincent Chaigneau, the London-based global head of rates and foreign-exchange strategy, wrote in a client note. “We’re still euro bears.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE