Euro area finance ministers will hopefully today sign off on a second €130bn rescue package for Greece, before a €14.5bn bond repayment comes due on March 20th. This would just narrowly avert both a potential disorderly default and some of financial markets worst fears. However, even if approved, the second bailout is unlikely to be the end of the story. The cost of getting the country's debt-to-GDP ratio down from the present level of 163% to 120% might not be feasible under current proposals and may also in the end not be palpable for the domestic electorate. With unemployment already running over 20%, the approved minimum wage cuts of 22% and planned reduction of the public work force by a fifth by 2015, may leave Greece questioning the price of euro area membership. The situation has certainly left many political leaders around Europe and financial markets participants asking the same question.
Today is a public holiday in the US and there is little in the way of data in the euro area. Euro area data later in the week is likely to be focused on growing strength within the single currency areas 'core'. Forward-looking indicators in the shape of the German IfO survey and the preliminary estimates of February's PMI reports are forecast to rise once again this week. Last week the German ZEW survey posted a sharp improvement for February. We think that the combination of these indicators is consistent with the 'core' euro area countries avoiding recession and will watch for signs of a further acceleration despite the Greek situation.
Key UK data released later in the week includes the 1st revision to UK GDP for Q4 2011 and February's MPC minutes. We expect little revision in the headline 0.2% contraction released in the preliminary estimate for Q4. While the February MPC minutes will provide some insight into this month's voting patterns, which let to an additional £50bn in QE.
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