It would be easy to dismiss the Greece “no” vote as a number of EU politicians did last night, blaming a “confused electorate” as the Maltese finance minister did, but that would be a mistake, one that Europe’s leaders have a habit of making far too often.
European leaders face some tough choices this week
after the weekend “Oxi” (No) vote in Athens showed that, for all of last week’s threats that a “No” vote would be a catastrophe for Greece, that these warnings have gone unheeded. Greek voters, worn down by 5 years of failed EU policy have chosen to give two fingers to European austerity, and make an already complicated situation that much more uncertain.
This morning financial markets look set to reap the whirlwind, after the Greek population gave a resounding “no” to the bailout deal
that was taken off the table prior to the 1st July deadline for the IMF repayment.
While recriminations continue to fly thick and fast the fact is yesterday’s vote will send shock waves through European capitals
and will cast a very heavy shadow over the future resilience of the euro as a currency, which means calm heads on both sides need to prevail.
Having endured five years of austerity, and an acknowledgement from the IMF that the original bailout plan was flawed from day one
, the only way forward now, if Greece is to remain in the Eurozone is for politicians from both sides to act in a statesman-like way now that the Greek electorate have had their say.
Greece PM Tsipras has already set the tone in a speech last night pledging to meet with EU creditors to discuss new proposals for debt relief
as well as a sustainable solution, but given the bad blood seen in recent weeks this could well be a very short conversation.
While fresh talks would be the sensible approach for now this seems improbable given all the talk of torn down bridges by Merkel’s deputy Sigmar Gabriel,
and the potential for a Greek exit remains much more likely, despite the fact there remains no legal mechanism for such an outcome.
The euro was designed with irrevocability in mind, and this irrevocability would now seem to be in some doubt, despite repeated assertions that the euro is irreversible.
The ball now lies firmly in the ECB’s court as the prospect of Greek banks running out of money in the coming hours is likely to increase,
with the prospect that the ECB will cut off Greek banks in the process causing a collapse of the Greek banking system, and in the process highlighting the significant structural flaws of the euro.
In a proper monetary union it would be inconceivable for the US to cut off Florida or for the UK government to cut off Scotland from their lender of last resort, but if the ECB ends ELA then that is precisely what will happen to Greece, either later today, or later this week.
Much will depend on the outcome of today’s meeting of German Chancellor Merkel and French President Hollande in Paris,
as well as tomorrow’s hastily convened meeting of EU leaders, to formulate a response to the weekend events.
We will also find out if the new firewalls that European leaders have claimed are said to be in place to deal with a Greek default are fit for purpose, and more importantly given the IMF’s intervention over the weekend, whether the European banking system is prepared for the possibility of losses that the ripple out effects that a Greece debt restructuring could well bring.
There is also the unpalatable fact that German leaders will have to explain to an increasingly sceptical population how that the so called bailouts which were supposed to be profitable, have turned out to be anything but, and which could well make the prospects of any new bailouts that much more difficult.
One thing is certain, whether they remain inside the euro, or outside, a deal remains a distant prospect, while the suffering of the Greek people looks set to continue.
– another move lower over the weekend as we head towards the 1.0600 level after the weekend Greek vote, but we need to break below the 1.0960 level and last week’s lows. A close below the 100 day MA at 1.1050 is also a sign of potential weakness. We need to recover back above 1.1170 to argue for a move towards 1.1400.
– last week’s fall below the 1.5680 level, now targets trend line support at 1.5530, from the 1.4565 lows as well as the 50 day MA. We need to get back through 1.5820 to stabilise.
– after the strong rally last week to 0.7160, we’ve slid back sharply and could well see a return towards the 0.7000 level. Last week’s key day reversal does suggest scope for further downside could be limited. Only a break below 0.7000 could well open up the 0.6920, the November 2007 lows.
– the next support is at 121.70/80 area, a key level, a break of which could see a move towards 120.85. We need to push above 124.50 to suggest a return towards the 125.85 highs.
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