Anyone looking to see whether financial markets are done tumbling as a result of the chaos in Greece and the possibility that the country will fall out of the euro after the July 5 referendum isn’t getting any solace from early trading today in China.
The markets in Europe and elsewhere didn’t start the day in a positive mood but sentiment darkened as the trading day closed in Europe. The German DAX Index, for example, was down 2.66% near noon in New York but finished the day off 3.56%. The biggest equity retreat came in Italy—down 5.17% for the day in Milan—and Spain—where the IBEX 35 closed lower by 4.56%.
Aside from slapping on capital controls and a bank holiday to prevent current withdrawals the Tsipras government doesn’t seem to have a plan beyond the July 5 referendum. One possibility is that the government is campaigning for a No vote but secretly hoping that Greek voters will vote Yes to accept the terms offered in the last offer by the European Commission.
The timing—Saturday meeting and Sunday deal (maybe) or (maybe) currency controls on Monday—leaves traders and investors with the real dilemma: Do they go into the weekend with long positions in European stocks and bonds that might take a big hit at the open on Monday or do they sell tomorrow (Friday) to reduce exposure?
What looked yesterday like a deal to postpone the Greek debt crisis today seems to have blown up. But the euro is hanging tough today—as it has throughout the crisis–at $1.12 to the dollar. And the latest purchasing managers index (PMI) from Markit Economics shows EuroZone economies growing at the fastest pace in 49 months.
Greek Prime Minister Alexis Tsipras is rushing back to Brussels on Wednesday to try to rescue a deal that that seemed today less likely than yesterday. And German Chancellor Angela Merkel is facing growing opposition to sending more money to Athens from within her own party.
Hopes rose Monday that EuroZone leaders and Greek officials had reached agreement on a possible deal that would let Greece stay in the euro by kicking the can down the road. Greek savers, either pessimists or realists–pulled another 1.6 billion euros out of Greek banks
Today the European Central Bank extended enough emergency liquidity assistance to Greece to get the country’s banks through today and Monday. The governors of the European Central Bank are scheduled to talk again on Monday to see if the bank will raise the cap again or decide that Greek banks are insolvent and revoke their lifeline
The EuroGroup meeting of finance ministers has ended without a deal today, but there’s at least one more week of frantic meetings ahead that might yet pull a solution out of a hat. Look to Friday’s meeting between Greek Prime Minister Tsipras and Russian President Putin and Monday’s emergency summit of European leaders
One of the puzzles of the Greek debt crisis is why the euro has hung in so strongly even as the crisis threatens the currency’s future. One potential explanation is something that’s being called Grangst.
Maybe the speech was part of an attempt to split the creditor group by attacking the IMF, which has been the most adamant of the creditors in demanding that Greece get specific about its plans for budget cuts and pension reforms. Maybe Prime Minister Tsipras thinks he can get the European Commission, marginally the creditor that seems to be most sympathetic with Greek demands, to broker a political deal without the IMF
