Market commentary: Crunch time in Greece

Following no conclusion to the meeting held yesterday between the Euro Area Finance ministers, the tone from Greek government officials is swiftly changing to a more reconciliatory tone as the deadline to a default is strikingly close.

The European Union’s leaders have called an emergency summit on Monday where the future of the nation in the union and currency block will be discussed. Greek Prime Minister Alexis Tsipras meanwhile this morning said he’s confident a deal on his country’s finances can be reached.

The mood in financial markets following the inconclusive meeting was one of optimism as both sides appeared to tone down their defiant stance and are going to lengths to find an agreement. There is also mounting pressure on Tsipras from the Greek public as thousands of people assembled outside the Greek Parliament in Athens last night asking for the nation to be saved after the government earlier blamed a conspiracy to blackmail Greece for a breakdown in talks in Luxembourg yesterday.

Interestingly, following the meeting, Tsipras issued a particularly dovish statement, where he said the upcoming summit on Monday “is a positive development in a path toward a deal” and “We aimed that final negotiations take place at the highest political level in Europe, and we are now working for the success of this summit. Those who bank on crisis and terror scenarios will be proven wrong.”

As a result, bond and equity markets have rallied this morning, with the German DAX increasing 0.83 percent, the French CAC 40 increasing 0.79 percent and the Spanish IBEX 35 increasing 1.05 percent, while the Greek AEX index is also trading up 0.88 percent as of this writing.

As Greece heads toward the climax of almost five months of talks before its existing bailout agreement ends on June 30, the country is staring into the unknown with its euro membership hanging by a thread.

In other interesting Greek related news, Russia signed a preliminary agreement on building a natural-gas pipeline through Greece, a deal that signals strengthening ties between the countries as the crisis- stricken government in Athens is increasingly isolated from the rest of Europe.

Russia’s development bank, known as VEB, will own 50 percent of the 2 billion-euro link and provide all financing, Greek Energy Minister Panagiotis Lafazanis told reporters today. Greece will own the remaining 50 percent.

Russian President Vladimir Putin is luring Turkey and debt- burdened Greece with promises they’ll become new energy centers for southern Europe if the Black Sea pipeline is built. He’s seeking a new route after the EU blocked OAO Gazprom’s South Stream pipeline over the conflict in Ukraine.

My position at this point is that most of the downside risk associated with a Greek Exit from the union are priced in, and following Tsipras’s comments I am more convinced that some form of agreement or at least deferral will be reached. Both sides of the table have too much to lose from Greece exiting the Euro, therefore I believe sensibility will prevail. These may well be looked back upon as attractive entry levels, with DAX having corrected over 6% in the past month due to the contagion risks associated with a Greek exit.

This article was issued by Simon Psaila, 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.