FXStreet (Barcelona) – George Saravelos, Strategist at Deutsche Bank, notes that the Europeans yesterday night set the framework around which Greece’s Eurozone exit might be averted.
Key Quotes
“In our last update we argued that the next major point of focus following the Greek referendum was going to be the European response: would Europeans re-open negotiations with Greece and under what conditions? Last night’s Euroarea leaders summit provided the answer, setting out a time frame for the days ahead.”
“First, Greece has to submit a detailed set of “comprehensive proposals” to the institutions by Thursday evening.”
“Second, Greece also has to commit to a list of “prior actions” to be voted through parliament before any financing can be provided.”
“The exact list of “prior actions” and “comprehensive proposals” has not yet been determined. Statements from Commissioner Juncker, President Tusk and Chancellor Merkel made it clear that the previous EFSF negotiations will be the frame of reference, but that an even greater level of commitment and detail is likely to be required. In effect, Greece has a few days to negotiate the outline of a full third ESM program.”
“The exact detail will be determined in co-ordination with the three institutions (ECB, IMF, EC) over the next few days. But our best guess is that creditor demands are likely to be more strict than under the prior EFSF proposals: on the one hand, Greece’s macroeconomic conditions have deteriorated. On the other hand, these commitments will need to refer to a potential third ESM program spanning over a longer time horizon and with greater financing needs.”
“Greece will likely pre-emptively apply for a 3rd ESM program on Wednesday. If agreement is reached by the end of the week, then the approval process for financing and talks on the ESM program can be set in motion over the weekend.”
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