The weekend, starting from late Friday evening saw some rapid developments on the Greece debt negotiations. With the IMF (and the ECB and EU) unrelenting on the Greek proposals, the Greece Prime Minister, Alexis Tsipras stunned the creditors by calling for a Greek Referendum. The announcement which was soon ratified by the Greek parliament on Saturday now sets the stage for a ‘Yes/No’ vote referendum due on July 5th. The referendum was ratified by a parliamentary vote of 178 – 120 with 2 votes abstaining. The move by Greece was certainly not taken in the right spirits with the Troika.
After the plans for the referendum were announced by the Greek Premier via live televised broadcast, Greeks lined up at ATM’s to withdraw cash. It is estimated that a total of 1 billion Euros were withdrawn in a single day.
Despite the call for referendum, there are a lot of questions surrounding the Greece crisis.
For starters, questions remain as to what would happen to the June 30th debt repayment to the IMF. The amount to be repaid comes to 1.6 billion Euros. So far comments from the other party have been stern, with the IMF Chief, Christine Lagarde noting that failure to repay the IMF on the 30th of June would automatically incur a default by Greece. Tsipras on the other hand justified the call for the referendum noting that the lenders were resorting to blackmailing and ultimatums.
Secondly, there is the question of the ECB’s ELA program which has so far kept the Greek financial sector alive by providing funding and thus liquidity. The ECB continued to provide the ELA assistance in hopes that Greece and its lenders would reach some sort of an agreement. With the shift in the tone of the negotiations at the very last minute, the one big question on everyone’s mind is whether ECB will continue its ELA to Greek banks or will it pull the plug. In the event the ECB stops the ELA funding, there is no chance for the Greek banks to stay afloat until the July 5th referendum.
Thirdly, the referendum itself. While it is a straightforward solution should the referendum see an overwhelming majority voting ‘Yes’ questions arise should the referendum see the Greek people voting ‘No’ to the lender terms.
Greek authorities have so far continued to reiterate that Greece was not on a path to commit financial suicide and that the country remains committed to the Eurozone and its treaties.
At the core of the current Greece negotiations is the Troika’s stand on cutting pensions, raising taxes including the VAT and reduce public spending (which also includes further layoffs from the Government sector). The same points which the left-wing SYRIZA called ‘the red line’. However, in the run up to Friday’s Eurogroup meetings, Greece did compromise to a certain extent. With the Troika failing to walk their end of the line, the referendum was the only way out for the Greek authorities.
To make matters worse, there are some new reports floating about domestic political discord as well within the coalition parties with the SYRIZA. Besides, it is also being reported that Antonio Samaras, the leader of opposition and head of the New Democracy party has also submitted a no-confidence motion to the parliament.
The close to 5-month long drama looks to be nearing its end despite the many questions. With the markets closed over the weekend, it would be interesting to see how the Euro, single currency reacts to these developments when markets open on Monday.
Below is a summary for Euro cross currencies as of Friday, 26/06/2015 Closing prices
- EURUSD, Friday Close 1.11573
- EURJPY, Friday Close 138.301
- EURGBP, Friday Close 0.782
- EURAUD, Friday Close 1.45744
- EURCAD, Friday Close 1.37447
