The ball is in the camp of the Greek governement
Didier Borowski and Tristan Perrier from the Strategy and Economic research team at Amundi highlight three possible developments of the Greek story.
Last week’s Eurogroup summit failed to reach a deal.
An exceptional meeting of Eurozone leaders will be held today, with the regular EU summit on 25-26 June seen as the very last chance to secure a deal before the 30th June.
30 June is a double deadline:
• It is the day on which Greece has to pay € 1.6bn to the IMF, a payment Greece says it cannot meet. In theory, a 30-day grace period may be obtained although Christine Lagarde dismissed this possibility.
• It is also the day on which the official European bailout framework – that was extended in February – is due to expire.
Beyond that, another critical date will be the 20th of July, when Greece must also repay the 1st half of a €7.2bn tranche to the ECB, a sum that it definitely cannot pay without additional aid.
Due to accelerating deposit flight, it is uncertain whether Greek banks can open next Monday. A unscheduled teleconference will be held by the ECB today to discuss the request from the Bank of Greece for additional Emergency Liquidity Assistance (ELA).
We see three types of scenario.
SCENARIO 1: THE LAST-MINUTE AGREEMENT (before 30 June)
• We still believe in a last-minute agreement before June 30, of the type that the Eurozone is familiar with. It remains our central scenario.
• Actually, we should not be overly surprised by the political difficulties encountered in seeking an agreement. The gap at the outset between the two sides – creditors on one hand, and the government on the other – was huge on all the key issues (pensions, VAT etc.)
• According to the Bank of Greece, both camps have never been so close to reaching an agreement: “From all the evidence available so far, it seems that a compromise has been reached on the main conditions attached to this agreement and that little ground remains to be covered.” (Bank of Greece, monetary policy report, 17 June).
• If it’s true, how should we interpret the current political mess? From a pure political standpoint, it is somewhat rationale for the Greek government to postpone a formal compromise to the very last minute.
Indeed, it would demonstrate (to the Greek people and to the parliament) that the government members have done their maximum to obtain the best possible compromise (it is very important to ensure political stability).
Against this backdrop, it also makes sense for EZ policymakers to prepare for no Greece deal, and to be very vocal…
• Thus, a peak in financial stress cannot be ruled out in the coming days as the perceived probability of success could fall. Rising uncertainty implies more volatility, even more so in the case where Greece has to implement capital controls.
• At the end of the day, even in the best-case scenario it will probably be a weak deal and certainly not a definitive solution. But it would be very positive for financial markets.
What if we are wrong? We must explore alternative scenarios.