FXStreet (Barcelona) – Kit Juckes of Societe Generale, shares his observations on the Greece referendum voting and the key risks ahead, and further views that any sovereign credit risk won’t materialize quickly and negotiations might take place again.
Key Quotes
“It’s another Sunday night with a Greek debt crisis as a nightcap. The referendum wasn’t close and it wasn’t a ‘Yes’, either. Another bad day for the opinion pollsters. So far, ‘risk off’ and a weaker Euro but not a really dramatic move. The most vulnerable currencies are CEEFX ones, with TRY, HUF and PLN all in more trouble than the Euro. The big winner is the Yen.”
“I don’t know how this plays out. The Greek Government insisted that it needed debt relief and the people agreed. Most observers probably reckoned that the debt was never going to be repaid in whole whatever happened. And so, the deal offered by Greece’s creditors was thrown out. Is the notion of sovereign debt relief within the Eurozone a Pandora’s Box that, once opened, cannot be closed, or not? If it is, Greece’s creditors will stand firm and Greece will be forced out of the Eurozone. If not, then we’ll have to rethink sovereign credit risk, regardless of QE and Mr Draghi’s “whatever it takes” comment.”
“What seems certain however is that this will not play out that quickly. At the moment, the two sides are standing firm but there will be negotiations, even if some mud slinging precedes them. And in the meantime, the ECB probably won’t precipitate affairs by ending the ELA. To do anything else would be for the ECB to play a pivotal role in a political crisis, which is not their mandate. But what that does, is to maintain a heightened level of uncertainty for a protracted period of time. Greece’s banks remain on life-support but not dead. Political uncertainty, the potential need for even easier ECB policy and a Greek economy that has stopped in its tracks while the people wait to see what happens next, is a recipe for a softer Euro and for risk aversion.”
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