Greek debt deals stall and reminds everyone of the Eurozone’s debt problems

The Greek debt deal talks stalled over the weekend, with the head of the Institute of International Finance, Charles Dallara, leaving Athens without a deal being struck. The deal on the table is thought to reduce the debt with investor's taking a loss of up to 70%; the sticking point now seems to be the term of any new debt and the interest rate payable on it.

Even if this agreement is finalised, this is not the end of Greece's problems as a large part of the €130 billion rescue package is due to come from Greece selling privatised asset's, none of which have been forthcoming to date. Furthermore, solving Greece's problems requires growth to be restored to the economy, which continues to look next to impossible given the ongoing protests and general strikes that remain rife across mainland Greece.

For the Eurozone as a whole, it would be naïve to assume that its problems will be resolved after the restructuring of the debt is agreed. Very slow growth with many economies likely to head into recession in 2012 it is going to require further action from the European Central Bank in the form of interest rate cuts and possibly some form of quantitative easing.

It was probably the lack of progress over Greek debt negotiations that held the Euro back on Friday. After four days of the Euro having the upper hand on Sterling, Friday saw Sterling regain the initiative to close above £/€ 1.20.

December's UK retail sales figures were helpful to Sterling, rising by 0.6% in December and by 2.6% on the year. There was some concern that the increase had been achieved only at the cost of savage discounting but sales were up and that was the most important thing to investors.

In Canada, the inflation data was a surprise with the consumer price index (CPI) down by -0.6% in December and the annual inflation rate dropping from 2.9% to 2.3%. The news did surprisingly little damage to the Canadian Dollar at the time but seems to have had more of an impact when Far East trading got under way this morning.

It is a busy week for UK data this week with public finance data for December, provisional GDP for Q4, the index of services, Bank of England MPC meeting minutes and the CBI surveys for industrial trends and distributive trades. The important GDP figure could show a slight increase in output in Q4 while the MPC minutes will be closely scrutinised for evidence of a move towards more QE at the February meeting.

Whilst it is a busy week, it is a slow start with nothing particularly interesting due today. There are auctions of French and German government debt as well as the EU finance ministers' meeting. Add to that the finalisation (or not) of the Greek restructuring and it could be an interesting day after all.