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If the contents of a WSJ article released overnight are to be believed, Germany may have relented in its push to get some form of Greek debt-restructuring through in the short term. Over recent weeks, Germany in particular has been engaged in a dispute with the ECB over this issue, with the latter warning that any form of re-profiling for Greece would potentially trigger a systemic financial crisis throughout the eurozone. The EUR has drawn some comfort from this back-down by Germany overnight, and in early London trading is just below the 1.44 level. That said, with Greece in disarray over the implementation of austerity measures and asset sales, there is still no guarantee that the IMF and the EU will agree to a new aid package for the country, let alone tackle the question over the next tranche of their existing bailout package due to be paid at the end of next month.

Guest post by FXPro

Commentary

Moody’s ┬álaments Japan’s ‘weak policy response’. The apparent rationale for Moody’s placing Japan’s sovereign debt rating on review for a possible downgrade was not just the soft growth environment but also ‘a weak policy response’. Since the tragic earthquake and subsequent tsunami rocked Japan back in March, the Kan government has made little progress on the critical subject of funding long-term reconstruction. Moody’s also remain concerned about the state of the public finances. Just four days ago, Fitch also lowered its outlook for Japan’s debt rating to negative; S&P did likewise last month. According to the OECD, Japan’s public debt is expected to reach 219% of GDP in 2012. It is an enormous dilemma for Kan – how to pay for reconstruction at a time when the pressure to consolidate the public finances is extremely intense. He would also be aware that his approval rating is under 30%. Not surprisingly, the Japanese yen has weakened overnight in response to the Moody’s announcement, with USD/JPY up at 81.50 and EUR/JPY up more than 1% at just above 117.

De Jager’s tough words for Greece. Dutch Finance Minister de Jager maintained the pressure on Greece over the weekend with some further abrasive rhetoric. In the last couple of weeks, de Jager has been at the forefront in terms of advocating a new ‘tough love’ approach to Greece. In a defiant statement on Saturday, he said that it was vital for Greece to implement all of its previous commitments, including fiscal austerity, economic and structural reforms, and a proper privatisation program ‘because otherwise the Netherlands, but also Germany, Finland and other countries will follow the IMF’ in refusing additional disbursement.

De Jager claimed that these discussions on additional aid and/or tranches under the existing bailout were completely separate from discussions on reprofiling or soft restructuring. In de Jager’s view, rising social unrest was not an excuse for implementation. The choices are very difficult, but according to the Dutch Finance Minister, the outcome would be much worse if Greece did not implement these reforms. Rumours swirled over the weekend that the IMF team, currently in Athens, had found that Greece had missed all of their fiscal targets. This is fairly widely recognised in any event, so should not come as any surprise. The IMF team is staying longer, because they are trying to get agreement on the proper implementation of previously agreed fiscal targets and measures, reforms and a more binding process on asset sales. We wish them luck.

The Irish might need more money as well. The Irish to are recognising that the prospect of them being able to return to the bond markets in 2012 to raise fresh funds are very low and, as such, there is talk that the EU/IMF may well be approached for a further loan.

Swiss franc weakens after soft Q1 GDP. First quarter GDP in Switzerland rose by just 0.3%, well below the consensus which was looking for +0.7%. In YoY terms, the economy grew by a still respectable 2.4%. At the margin, this outcome will prompt the SNB to be a little more cautious in terms of hiking rates too soon – there has been some speculation recently that the Swiss National Bank may even hike in a couple of weeks time. In response, the impregnable Swissie has given back its overnight gains and in early London trading is just above 0.85. A much stronger performance by Asian equities overnight has also triggered some Swissie profit-taking after it reached a record high yesterday.

Hoenig wants Fed to raise rates. Nothing new from Kansas City Fed Chief Thomas Hoenig, who on the weekend again advocated that the Fed should lift the funds rate from near zero in order to encourage saving. He believes that the Fed’s zero interest rate policy is stimulating spending at a time when the US needs to raise saving. Hoenig was also cautions that low rates risk encouraging bubbles, such as the housing bubble which arguably transpired in response to the Fed’s ultra loose monetary policy a decade ago.