Grexit is Dead, What’s New?

Jun 16 2017, 4:06 pm

Another day with the same old news headlines about Greece (Grexit) are hovering around, leading to another fresh buying spree across European equities.

“Greece and creditors reach deal” sounds familiar, isn’t it? Every few months we are reading the same headline over and over again. Today the headline is Greece and creditors reaching the deal, in few months, the headline would change to “Market declines on Greek fears of default."

We are in the same circle for about a decade now. Would this change anytime soon? Well, it did not change for the past five years, so it’s unlikely to change anytime soon.

The Latest Deal

Greece and its international creditors have reached a deal on the next stage of Athens’ 86B euros bailout, eliminating the risk of default on more than 7B euros in debt repayments that fall due next month.

The deal comes after months of uncertainty that have weighed on Greece recovery, allowing the country to secure money it badly needs.

Despite that, the difficult discussion about debt relief has been put off, which is more concerning and likely to come back later this summer.

What Happens Next?

Even though the deal has already been announced, some European Union parliaments are due to approve the deal.

This means it's still not a Win-Win situation, but the vote is promising to be an easy one, given the fact that Germany is pleased with the recent negotiations.

Things Will Be More Complicated

As noted before, Greece is living within the same circle for almost a decade now, loans, bailout plans, negotiations, debt relief, and reforms but things are getting worse.

Despite the fact that some of the Euro Area countries suffered for the past five years from the aftermath of the financial crises, and also got bailed out. But we haven’t seen these countries suffering as much as Greece is suffering.

Some would ask, why don’t they just reach a deal once and for all to end this long-lasting problem. The simple answer is - it's politics.

When the EU was established, it was supposed to be an economic union, but now it turned in to a political union, which is even more complicated than ever before.

The answer to the above question is, no matter what the EU does, it will probably never going to solve the Greek situation. Why? Because they are implementing the same reforms that they did before, which never worked and they keep doing the same things all over again.

They are just pushing the cane down the road. The plans that they were implementing do not grant enough growth for Greece in order to repay its debt and/or to grow enough in order to implement reforms, spend on its economy and to repay its debt at the same time.

As long as they continue to push Greece to do the same thing, expect more and more complications over the coming month/years.

Why & For How Long?

Some would also ask, what would be the end of all this? Well, they are always saying that there is a light at the end of the tunnel, but the question remains, how long is that tunnel? No one knows.

At the same time, don’t expect Grexit anytime soon, the EU already lost the UK who’s not using the Euro as its national currency.

The European Union is built on the Euro, losing the UK was not easy despite the fact that they are using the pound. Losing a country using the Euro would be a massive failure of the whole Union.

This is why Germany and the rest of Europe will do whatever it takes to keep the Union and to keep Greece within the Union as long as possible.

Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.