The torment continues. The “will they won’t they” dance of the Troika and Tsipras has seen market optimism on an imminent deal Monday to market despair today as the Greek proposals do not go far enough.
Here is a good synopsis from the FT Creditors say no (again)
The IMF is holding out for more substantive pension reform and that is going to be hard for the hardline Syriza politicians to stomach. Rinsing the rich and businesses is not the ideal recipe for improving an economy so unfortunately we are in for Greek headlines for sometime even if a deal is reached this week.
The ELA has already been extended several times over the past several days as depositors have taken out their money in droves. Irrespective of whether a deal is done this week or indeed by the 30th June deadline, Greek banks will continue to need support from the ECB. It is highly unlikely that Greek depositors will return immediately (or ever) and so how will the economy get back on an even keel without a viable banking system to support it?
Unfortunately we only see the front men. Tsipras came to power on a mandate that was anti-austerity and with the support of some fairly hardline members of his party. Convincing these people that caving to the hated Troika is a win is going to be extremely hard. He then only has the card of calling an early election, which again just prolongs the agony for financial markets and the Greek people.
One has to feel for the Greek people. Whatever happens, the economy is back in recession and another raft of austerity measures are going to be a bitter pill to swallow. There have been demonstrations from both camps, but it would seem that the majority of Greeks would prefer to stay in the Euro – for now…
As always it takes standing on the precipice to focus minds and it may well be that a deal (a fudge) is cobbled together that allows Tsipras to save face but to the same extent does not provide any ammunition for other European anti-austerity parties waiting in the wings to see what happens.
What it does not solve is an economy on the rocks and a banking system that will continue to need serious support. Whilst we may see a deal this week and the short-term market rally that will ensue as markets heave a sigh of relief, the story will be by no means over.
Bond Muse Senior Fund Manager with 20 years of experience at various asset management firms. Has covered the whole range of Fixed Income Instruments from Government Bonds to High Yield