Eurozone Weekly Economic Briefing: 04 Nov 2011

While the initial market reaction to the Eurozone deal reached on 26 October was positive, with a substantial relief rally, this is already fading. One problem is that the terms of the deal are vague â?" Eurozone leaders have only been able to agree on a bare minimum of measures and words. There are uncertainties about the details of the proposed Greek debt swap and significant concerns about the plans for the EFSF. And the deal continues to rely on optimistic assumptions, such as plans that Greece will raise an extra ?15 billion in privatisation on top of the already very ambitious â,¬50 billion set out in the previous deal On top of these uncertainties, the Greek premier has introduced a major new uncertainty, initially calling a referendum on the new deal but then backing down under intense pressure from his own ministers and the opposition. This points to heightened political tensions within Greece, which will keep market tensions high and could ultimately trigger a disorderly Greek default if the political situation remains unresolved. Such an outcome would risk considerable costs in terms of economic growth and financial contagion.