FXStreet (Bali) – The Strategy/Economic Team at TDS analyzes what is needed to move forward the Greek situation, which appears now to be stuck in an unpredictable terrain following the ‘No’ Greek referendum vote.
Key Quotes
“The Greek Government Must Say What it Wants: Greek PM Tsipras is expected to meet with his ministers Sunday night and all Greek political party leaders on Monday morning. European leaders must wait for the Greek government to state what their request is now after the referendum. If it is seen as sensible, then creditors can respond in kind. The early comments from FinMin Varoufakis are not encouraging. While he has talked about now cooperating with creditors, he has stated there can be no new loans without first restructuring the debt. If that is the government’s position, it will be a non-starter.”
“Euro Working Group Must Decide if There is a Mathematical Way to Move Forward: This is probably the less important issue over the next day, but the technocratic working group will meet on Monday. They will likely be hammering out what the feasible alternatives are now,. That will enable the politicians to decide whether what is mathematically needed to reach a sensible deal is politically feasible. But their meeting will also be about further briefing and preparing contingency plans for a Grexit.”
“Leaders Must Suggest There is a Political Will to Move Forward: It is safe to say few governments really had a deep discussion on what to do in the case of a No vote last week. Most, we think, just went with the visceral response that it meant discussions were at an end and that Greeks were unlikely to vote no anyway. Spanish and Italian leaders have already announced they will be meeting with key domestic leaders Monday morning and many more are likely to do the same. Political officials in Italy, Belgium, and Luxembourg have provided initial comments to suggest they are in favour of still trying to reach a deal this week. Chancellor Merkel and President Hollande will be meeting for a working dinner Monday night and have called a Euro Summit for leaders on Tuesday at 5pm BST/Noon EDT, which Eurozone FinMin’s will prepare for in a Eurogroup meeting earlier in the day Tuesday. Whether negotiations continue or not, it seems hard to fathom that leaders at the very least do not agree to send humanitarian relief to Greece in order to directly address the social crisis.”
“Greek banks need an ELA extension to make it past Monday: The Bank of Greece is expected to request an ELA extension on Sunday, which the ECB Governing Council would discuss on Monday. Government sources suggest they plan to request a €6bn extension and that they have been informed by Greek bank heads that they lack cash to operate past Monday. ECB sources have so far suggested they would reject this request, but will not remove ELA funding. This is ultimately the binding constraint for negotiations and the biggest stumbling block. No other institution can provide bank liquidity and Greek banks will now need daily injections.”
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