FXStreet (Guatemala) – Analysts at ING Bank explained that the resolution of Greek debt problems continues to be a Gordian knot for European leaders.
Key Quotes:
“While the ‘institutions’ have now already significantly downscaled their requests in terms of primary budget surplus targets, effectively converging with Greece’s proposals, huge differences remain on how these targets should actually be achieved.”
“Greece, meanwhile, managed to shift a crucial deadline again, by invoking a rarely used procedure, allowing it to bundle all the repayments to IMF to the end of the month. This gives the negotiators respite until the end of June. The last country using this option was Zambia. As the Greek government is sticking to its ‘red lines’, giving little leeway to reach a compromise, the probability of a ‘Grexident’ is rising”
“Indeed, Greek Prime Minister Tsipras has trouble finding support within his own party to compromise on a number of touchy issues. Meanwhile, creditor nations are losing their patience and the danger is that Tsipras is actually overplaying his hand by believing that other Eurozone members want to keep Greece in the monetary union at all costs.”
“For the time being, German Chancellor Merkel still stands behind a Greek membership in the Eurozone, though she also has to take into account that within her own party, a growing number of MPs are advocating a Grexit. It looks as if a temporary agreement could still be brokered, with €10.9bn of funds initially earmarked for bank capitalisation diverted to finance Greek debt reimbursements over the summer months.”
“However, after that, a third bail-out programme will have to be negotiated, with an agreement rather unlikely before the fourth quarter.”
“In other words, even if stop-gap financing can be provided over the coming weeks (our base-case scenario), uncertainty will persist through much of the second half of this year.”
“While some form of debt relief (basically a new extension of debt maturities and lowering of interest rates) is likely to be unavoidable, creditor nations are unlikely to offer this quickly, given the loss of trust between the two parties. First, the Greek government will have to show that they are willing to push through the necessary reforms.”
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