Market commentary: The Greece sagas

Greece and the rest of the European Member States are, once again, at odds over the Mediterranean country’s bailout and the conditions imposed or requested by its international creditors. The elusive compromise that was almost reached in February, but never completely agreed upon seems to face a new issue or technical difference every day, and a final agreement never appears to be within reach.

On one side there is Greece that, despite using much different tones and more conciliatory arguments, is still demanding flexibility and fiscal space to address a deflationary economy, sky-rocking unemployment and social inequality and unrest, while still asking the ECB and European States to provide additional liquidity until a satisfactory long term solution is reached.

On the other side, there are the European Union and the ECB that feel rather uncomfortable to grant Greece additional concessions or bridge-financing, worried to set a dangerous precedent that could encourage other struggling Member States to advance similar requests.

The ECB has already adopted a somewhat compromising approach increasing the limit of the Emergency Liquidity Assistance facility (ELA) available to Greek banks. However, officials from the Central Banks have also hinted that the ECB is not likely to provide additional help unless a definitive agreement is reached.

Under the revised ELA facility, Greek banks would have access to around EUR 68.8 billion in emergency liquidity funding, and as at today, with most of the available balance already withdrawn, they have about EUR 3.5 billion of liquidity left.

The ECB is also concerned that any additional increase in funds’ availability will result in Greek banks financing the government throughout the purchase of short term sovereign debt instruments, and in so doing, breach the EU Treaties that prevent the ECB from providing liquidity for direct government financing.

From a political point of view, the ongoing negotiations has become more complicated and, unfortunately for Greece, there is a growing portions of Eurozone’s parliaments and citizens that began to manifest their belief that the Greek’s demands are making the Mediterranean country’s membership to the Euro not worth the costs.

German politicians are among the loudest voices in this growing group with opposition parties starting to harshly criticize how the European Member States and the ECB have conducting the ongoing bailout negotiations, and asking for more firm and decisive ultimatums to Greece. In Germany, where the Bundestag will have to approve any final bailout agreement, a pool conducted by broadcaster ZDF on March 13 reviled that 52% of Germans no longer see a Greece’s Membership to the Euro beneficial.

This is a 26.8% increase from a month ago when 41% of Germans wished for the Mediterranean country to exit the Euro. This popular frustration among citizens of Eurozone Member States may prompts politicians involved in the negotiations to increase pressure on Greece to meet their requests or to leave the common currency for good.

While the bailout negotiations continue, Greece is facing growing economic and social deteriorations. The Greek economy is still stuck in a deflationary environment, a shrinking output that has declined 25% since 2007, and not apparent solutions to snap out from this downward spiral.

The country unemployment increased in the last quarter of 2014, bring it to 26.1% up from 25.5% in the previous quarter. Despite being still below the record high level of 27.8%, three-quarters of jobless Greeks have been unemployed for one year or more and the unemployment level within the 15 to 24 age bracket reached 51.5%.

With an economy without short-term prospective, a government that is quickly running out of money and funding options and a diving stock market, that lost 4.68% throughout the last 2 trading sessions, Greece may be ultimately running out of time and its exit from the Euro could soon be the only alternative left on the table. 

This article was issued by Paolo Zonno Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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