Here we go again. The merry go round of tit for tat. Yesterday’s talks between the Syriza party and Troika representatives broke down, as Greek authorities rejected proposals to extend the current bailout conditions. As you know the present deal runs out on the 28th February. After that, well who really knows!! The news of the fallout sent shockwaves through the market weighing on the EUR. European stocks opened in the red this morning down 0.50% at the open. While Greece’s Finance Minister continues to talk the talks up saying an agreement will be reached, truth is can you really trust what these amateur politicians have to say. The big worry is of course the fall out. If Greece defaults, who’s next Cyprus Portugal Spain Italy, take your pick. I find it quite amazing that the Greeks knowing how easy they have had it for so long don’t see the merit of keeping within the EU and finding a happy medium. EU finance ministers have said they are ready to have another round of talks with Greek officials on Friday, provided that the Greek government commits to a number of principles as outlined by the other EU members. EU finance ministers will meet today and will undoubtedly discuss the Greek situation again. Germany as you know has already softened her tone and is willing to relax some of the earlier demands. I guess the Greeks are sticking to their guns and more importantly sticking to their mandate that got them into power. You know what, let them go bankrupt. Let them leave the EU and the EUR. Cut their credit lines. Let’s see how far that gets them. By the time they realise the country is about to implode it will be too late. The damage will have been done and maybe the markets will see actually see the positives from all this. Short term pain for long term gain. Enough is enough.
Neither the German Chancellor nor other European leaders want to have to tell their parliaments that the money they lent Greece will not be coming back. That would appear to preclude a straightforward debt write-off of the kind that the new Greek authorities initially sought. Greece is not due to start repaying most of its official debt (€240bn) until after 2030, and it has a 10-year interest payment holiday on EU zone loans. Creditors such as Germany, Finland and Slovakia could face parliamentary resistance if they granted Greece’s radical government additional funds on easier terms with fewer conditions and less intrusive oversight. In other words the EU has to stand firm(ish) and find an amicable solution where everyone wins something. Governments in Spain, Portugal and Ireland that have pushed through painful austerity plans in return for aid, and face elections in the next year, are determined not to see Tsipras win the fight…that would simply hand the advantage to their own political opponents.
The EURUSD fell to a low of 1.1320 as a result of the news having traded “comfortably” above 1.1400 for the past few days. The failure of the talks ensured the EUR is now back in play with the advantage handed back to the USD. The sentiment is likely to remain weak – the ECB deciding when to cut off Greek banks’ ELA access on Wednesday and Euro Group President Dijsselbloem is saying this week is the only window for negotiation. Further failure in negotiations will send the EUR reeling through 1.13 handle opening up the prospect of 1.1097 lows. BRING ON PARITY.
Today sees 2 MIGHTY economic data. (1) UK CPI at 9.30am, market is expecting a drop to 0.40% from 0.50% for Jan…GBPUSD already fallen back into the 1.53 range and any shocks could send the GBP on the next rocky road towards that dreaded (but its coming) 1.40 handle!! and (2) German ZEW economic conditions (last 48.40, expecting 55). Nevertheless all eyes on EU/GREECE negotiations. As our rugby coach always told us, Losing IS NOT AN OPTION. I wonder who will blink first.
Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.
Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.
Follow our tweets @parityfxplc