The Greek saga continues after Athens and its creditors failed to reach a deal at the Eurogroup meeting yesterday. We further learned that there won't be a grace period for Greece if it fails to repay the IMF on June 30. Last but not least, media reports suggested that the ECB has called for an emergency meeting today to discuss the Greek ELA. If confirmed this could be an indication that the persistent political impasse and the intensifying deposit flight have forced the ECB to reconsider its role as lender of last resort.
So, should we panic? Maybe not just yet. For one it seems that the effort to reach a deal continues with an EU leaders' summit expected on Monday. In addition, yesterday we saw the first mass anti-government protests in Athens suggesting that the creditors' strategy may be paying off. We further suspect that a potential statement today by the Governing Council that it will make any future ELA contingent on a reform deal could add to the pressure on the Tsipras government both internally and externally. All that should, hopefully, get us closer to a resolution. That said, we are conscious of the fact that markets in Europe could start panicking if the deadlock persist into next week and the June 30 deadline draws near.
EUR seems to be holding firm for two reasons. One is the expectations that we could squeeze higher on the back of a successful outcome. The second reason is market positioning. Indeed, foreign investors unwinding long positions in EZ stocks and bonds also pare back short-EUR hedges, propping up the single currency.
All that said, we suspect that EUR should come under sustained downside pressure if we get no resolution by Monday and fears of Greek default and capital controls escalate next week. It still remains to be seen whether the Greek tragedy would remain a EURcentric development or trigger global risk aversion.
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