FOREX-Euro down on month-end flows, Greek headlines inject volatility

30 Jun 2015 | Author: | No comments yet »

EU’s Juncker Said to Be in Touch With Tsipras on Greece Deal.

Greek Prime Minister Alexis Tsipras on Monday contacted European Commission President Jean-Claude Juncker, who detailed how a last-minute bailout accord could still be reached, according to an EU official. Greece is staggering deeper into the economic unknown, saying it will miss a payment to the International Monetary Fund today and preparing to exit the protection of Europe’s bailout regime at midnight. The government set new limits on pension payments as cash began running out and there were isolated reports of shoppers stocking up on medicine and baby formula. Beyond accepting proposals made by international creditors last weekend, Commission spokesman Margaritis Schinas said there would be unspecified discussions on Athens’s massive debt load, which stood at 317 billion euros ($355 billion) at the end of 2014, or 177 percent of the country’s annual GDP. The second is the expiry of the bail-out agreement between Greece and its international creditors, leaving it for the first time in five years without official support.

This would allow for euro-area finance ministers to meet and approve the measure. “We’re open for negotiations, the attempt to bring Greece back to the negotiating table continues to this hour,” Austrian Finance Minister Hans Joerg Schelling told journalists ahead of a government meeting in Vienna on Tuesday. The European part of Greece’s international bailout is set to expire Tuesday, and with it any possible access to the remaining rescue loans it contains that it needs to pay its debts. While he labels it a vote on austerity, his counterparts in Berlin and Paris say it’s nothing less than a decision on whether to remain in the euro. The ballot may be rendered moot by an unpaid bill to the IMF; that could prompt the European Central Bank to withdraw its lifeline — now frozen — to the country. “A ‘no’ in the referendum would make it almost impossible for the IMF and for Europe to provide support for Greece beyond what would de facto be humanitarian relief,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Greece would then have to issue IOUs as a first step to a Grexit.” At stake, beyond the nation’s fate, is the credibility of the currency union conceived as the irreversible and crowning achievement of post-World War II integration. “If the euro fails, Europe fails,” German Chancellor Angela Merkel often says.

The Greek government—which is as strapped for cash as its citizens (who can only withdraw €60 a day from ATMs)—does not have the money to pay the IMF the €1.5 billion ($1.7 billion) that is due this evening. Capital controls began Monday and will last at least a week, after a weekend bank run prompted by the prime minister’s call for a referendum on creditor demands in return for bailout loans. For now, at least, markets suggest investors are confident in policy makers’ efforts to quarantine Athens during more than five years of crisis fighting. Interviewed on Spain’s COPE radio Tuesday, Rajoy said that in the event of a Greek exit, people could think that “maybe another country could abandon it in the future.

European officials and Greek opposition parties have warned that a rejection of the creditor proposals in Sunday’s popular vote will lead Greece out of the eurozone and potentially out of the European Union itself. Greece will therefore suffer the ignominy of becoming the first advanced country to default to the IMF, joining the likes of Sudan and Zimbabwe in that hall of shame. The Stoxx 50 index of leading shares was down a further 0.8 percent and Germany’s DAX down 0.6 percent Tuesday, after recording big losses the previous day. The central bank, which has pumped 89 billion euros of Emergency Liquidity Assistance into the country, hasn’t said how it would classify it or react. Although this will be an abject moment even in Greece’s chequered financial history as a serial defaulter (for over half of its existence since becoming an independent state in 1830 it has been in default, with the British most memorably sending the Royal Navy to seize marine assets in 1850 to pay off the country’s debts) it will matter more symbolically than practically.

Credit-rating agencies have indicated that a missed payment to an official creditor like the IMF will not trigger “cross-default” clauses in privately-held debt contracts allowing bondholders to demand their money back. Policy makers would have to consider the effect of any missed payment on the solvency of Greek banks against the political consideration when they discuss the level of assistance on Wednesday. And although the European Financial Stability Facility, the main vehicle used by euro-zone states to lend to Greece, does have such clauses, it has indicated that it will not exercise this right. Mr Juncker has offered to call an emergency meeting of the Eurogroup of euro-zone finance ministers on June 30th if Mr Tsipras accepts a version of the creditors’ proposals published on Sunday. The Brussels-based European Banking Federation said Tuesday that banks “have significantly reduced their exposures to Greece, limiting the risk of contagion through the banking system to other countries.” The Greek Finance Ministry says it will open about 1,000 bank branches across the country for three days from Wednesday to allow pensioners without bank cards to make withdrawals — but for a total of just 120 euros ($134) for the week.

But there appeared to be scant desire to do that, with numerous officials from Tsipras’ radical left Syriza party arguing for a “no” vote on a series of television and radio appearances. Meanwhile, irate depositors called in to television stations to report that some ATMs in Athens had run out of 20-euro notes, leaving them dispensing 50 euro notes only. Finance Minister Yanis Varoufakis went even further, threatening court action if attempts were made to remove the country from the joint currency. “We are taking advice and will certainly consider an injunction at the European Court of Justice.

Mr Tsipras has reportedly spent the day on the phone with officials in Brussels, and members of his party have hinted that Athens will make an offer later today. That could produce new leadership more amenable to the demands of creditors. “The Greek government’s behavior has been beyond belief,” German Finance Minister Wolfgang Schaeuble said in an ARD television interview. Pensioners have been particularly hard hit by the capital controls, as many elderly Greeks do not have bank cards and so found themselves completely cut off from their money. On Monday, stocks slid in the wake of Greece’s decision to call a referendum for July 5 on creditors’ bailout proposals and to impose controls on capital.

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