Greece is likely to hit the markets this week, as no one expects quick resolution.
In the best case scenario there would be no major negative surprises from Greece.
The worst case is that bad news will flow from Greece that may push up the odds of a sudden exit and related contagion.
The likely case is that leaders on both sides will continue to buy time. they will make threats but leave options open, and Greece will continue to pressure markets.
The consensus is that there will be new elections that will put the left wing anti-austerity, anti-bailout agreement ‘Syriza’ party in charge.
That may put Greece on a collision course with the EU, which obviously cannot allow the precedent of reneging on bailout agreements.
ECB Executive Board member, Joerg Asmussen, has rejected any change to Greece’s reform program if Greece is to remain in the Eurozone.
Greek’s banking system is completely dependent on the ECB, and as Italy’s former Prime Minister Berlusconi had learned, it plays hardball when needed.
It is clear thus far that Greece doesn’t want to leave the EZ, but that the political will for continuing with the bailout program seems exhausted.
Yet, the ECB insists they continue.
This is all part of the normal negotiation in the annual break down in the Greek drama.
The fate of Greece is a political matter decision and thus particularly unpredictable in the short term.
Here are specific events to watch this week.
- Final attempt at coalition and avoid another election: By early this week, we will know if final attempts over the weekend to form a coalition were successful. If not, election is coming, which is expected to bring in a more radically anti bailout regime.
- Greek bond redemption: While Greece has enough cash to avoid further defaults until June, there is an approximate 450 million Euro bond redemption due next week. With a hung Parliament and possible default looming anyway, it’s likely that Greece will use its two-week grace period to delay payment until the end of May. This would both save cash and maintain uncertainty and pressure on the markets and EU to offer Greece a better deal. The delay is good for Greece, bad for global markets as it feeds fears of Greek default.
- EU Spin Control: Given the likely bearish effects of the above, some spin control is expected from other EU officials. If markets are desperate enough for some positive news, that might inspire some stabilization or even a bounce for risk assets.
In the Long term, Greece’s fate is clearer.
Unless the EU, particularly Germany, decides to spend a lot more in debt forgiveness and other growth inducing aid, Greece will default and exit the EZ.
This is because Greece can’t afford to do otherwise, and will suffer even greater contraction in the coming years, at least before the benefits of reduced debt payments and a devalued currency begin to spur growth similar to that experienced in other post default situations, like that of Iceland…
Well this is all for now, hope this helps in making good decisions on your binary investments trades.
Happy Trading and enjoy….