Greece is the word.
All appeared well, solved and sorted last week; just not signed despite some obstacles along the way. Financial markets seem content with the idea that Greece and its creditors will do some sort of deal before the 30 June deadline. Plus the US Federal Reserve looks like hiking rates, possibly twice this year and China can avoid an equity market catastrophe despite the recent massive devaluation.
Phew, everything’s done then, except the Greek deal isn’t actually signed yet and negotiations continued over the weekend with no resolution, the expected US Fed rate hike isn’t until September and China’s equity market is not quite out of the woods yet. So we know that events aren’t actually done yet and lots can happen in the meantime.
The drawn out Greek negotiations may be calming some into a false sense of security: that somehow, some way, Greece will pull a rabbit out of its kapelo (that’s Greek for hat) or its creditors will just continue to hold endless talks and grant endless extensions. However, the every-day Greek is nervous, even more than the last crisis back in 2010/12, currently withdrawing over €1bn a day from banks and putting more pressure on the Greek banking system (refer chart below).
Over the weekend, the European members of the institutions have rejected the request from the Greek government for an extension (by a month) of the current programme which means that, unless there is a major change of position by either party, the Greek government will not gain access to the €16bn of funding and the Greek government will miss the IMF debt repayment due on 30 June.
The Greek government has called a referendum on the latest proposals from the creditor institutions to be held next Sunday, 5 July with the question: “Do you approve/agree with the latest proposal of the institutions”. The government will campaign for a “no” vote and exit from the EU.
The most likely sequence of events will be: a) A (further) deposit run on the Greek banks, leading to the imposition of Cyprus-style capital outflow controls, including deposit withdrawal limits, compulsory bank holidays (all week!) and restrictions on external payments. b) Greece does not make the €1.5bn payment owed to the IMF on 30 June and is consequently cut off from further IMF funding c) The ECB restricts access to the emergency liquidity assistance facility (ELA) for Greek banks at the Bank of Greece and d) Tighter enforcement of capital controls, deposit withdrawal controls and other external payment controls pending the referendum result.
That leaves a high degree of uncertainty with regards to payments, Greek bank solvency and indeed the future of the European Union; not just a Greek exit from the Eurozone. This will not be solved easily or soon.