19 Jun 2015
Heading towards a ‘Grexit’? – Rabobank
FXStreet (Barcelona) - The Rabobank Team shares the key developments surrounding the negotiations between Greece and its creditors, noting that Grexit risks remain elevated.
Key Quotes
“So an Emergency EU Summit it is then, but on the coming Monday, not Sunday. That is after yesterday’s Eurogroup meeting ended in acrimony, Pierre Moscovici stating, “There’s not much time to avoid the worst,” and Jeroen Dijsselbloem that in terms of Grexit, “The way it goes now we’re going in that direction”.”
“The ECB are apparently set to hold their own emergency session today to discuss more aid for struggling Greek banks, potentially increasing ELA by a further EUR3.0bn, which comes just after it was already increased by EUR1.1bn to EUR84.1bn; that clearly suggests that Greek deposit flight is accelerating: indeed, why would it not against this kind of backdrop?”
“We must all still hope for a deal given what is potentially at stake, not just for those involved in Europe, but for the global economy and financial markets. However, it appears the two sides are still talking past each-other, conceptually: it’s not so much of one side saying “10”, the other “1”, and them being able to meet at “5”, as when haggling; it’s more one side says “blue”, which is valid, and the other replies “sausages”, which is equally valid, but an entirely different conversation. (Unless you know someone who produces blue sausages.)”
“More concretely, “We must all follow the EU’s rules” is an argument it is impossible to disagree with, as the rule of law is paramount; but the logic that debt which physically can’t be repaid won’t be repaid, and that austerity policies in an economic depression make things worse, not better, is just as iron.”
“Meanwhile, as the FT notes today, “Without work, many young Greeks feel they have nothing to lose.” The key question is, does the Greek government feel the same? As we head towards Monday recall that George Schultz once noted, “Negotiations are a euphemism for capitulation if the shadow of power is not cast across the bargaining table.” It appears both sides in Europe are agreeing on that much at least.”
Key Quotes
“So an Emergency EU Summit it is then, but on the coming Monday, not Sunday. That is after yesterday’s Eurogroup meeting ended in acrimony, Pierre Moscovici stating, “There’s not much time to avoid the worst,” and Jeroen Dijsselbloem that in terms of Grexit, “The way it goes now we’re going in that direction”.”
“The ECB are apparently set to hold their own emergency session today to discuss more aid for struggling Greek banks, potentially increasing ELA by a further EUR3.0bn, which comes just after it was already increased by EUR1.1bn to EUR84.1bn; that clearly suggests that Greek deposit flight is accelerating: indeed, why would it not against this kind of backdrop?”
“We must all still hope for a deal given what is potentially at stake, not just for those involved in Europe, but for the global economy and financial markets. However, it appears the two sides are still talking past each-other, conceptually: it’s not so much of one side saying “10”, the other “1”, and them being able to meet at “5”, as when haggling; it’s more one side says “blue”, which is valid, and the other replies “sausages”, which is equally valid, but an entirely different conversation. (Unless you know someone who produces blue sausages.)”
“More concretely, “We must all follow the EU’s rules” is an argument it is impossible to disagree with, as the rule of law is paramount; but the logic that debt which physically can’t be repaid won’t be repaid, and that austerity policies in an economic depression make things worse, not better, is just as iron.”
“Meanwhile, as the FT notes today, “Without work, many young Greeks feel they have nothing to lose.” The key question is, does the Greek government feel the same? As we head towards Monday recall that George Schultz once noted, “Negotiations are a euphemism for capitulation if the shadow of power is not cast across the bargaining table.” It appears both sides in Europe are agreeing on that much at least.”