A Greek Tragedy Hub: Is Grexit irreversible?

After months of doing so, the can can't be kicked anymore down the road. This time it is for real, crunch time. Or so it seems. The situation is well-documented: Greece is due to pay 1.3 billion euros to the IMF before the end of this month and in order to do it needs to reach an agreement with its creditors, these being basically the EU and the IMF.

But negotiations are reportedly stuck in a point where such agreement seems to be more and more difficult. The Greek government, backed by a majority of Greeks who feel they have reached the limit of what they can pay, doesn't accept to apply the reforms the so-called Troika (IMF, EU, ECB) are asking for: spending cuts in the pension system and avoid of a rise in the minimum wage.



In such position, and prior to decisive Eurogroup meeting (18th June) and Eurozone leaders summit (25th June), what's the most likely outcome of events? Is Grexit finally happening? How will it affect the EUR and the FX markets?

Actually, nobody knows that, as the nature of such an event is completely unprecedented. Still, in this report we gather some views shared by our dedicate contributors in the last week trying to find the big picture in this whole Greek mess.

Greece's Current Problems by Arkadiusz Sieron

Let's start by describing the situation. This is how bad it is: 

“The main problem is quite simple: Greece does not have enough income to pay its bills. Hellas has to pay off over €1.5 billion to the IMF in June and €7 billion to the ECB to repay government bonds (including interest), which mature in July and August.”

Oh no, it's even worse:

“The public finances are not the only problem. The Greek banks are facing bad loans, deposit outflows and are running out of the collateral they need to survive. And the Hellas’ bad financial situation is aggravated by the debt servicing costs. Greece’s debt is the highest in the Eurozone and it will reach 180.2 percent of the GDP this year.”

So, what? Should we go risk aversion full mode?

“Thus, it seems that in the nearest future Greece’s debt crisis will be a supportive factor for gold prices. Fears over Greece should increase in the coming days, so then the gold prices, as the yellow metal will be bought as a safe haven or a hedge against the financial turmoil that could follow a Greek default.”

A Speech of Hope for Greece by Yanis Varoufakis

Greek FinMin and FXStreet Contributing Star Yanis Varoufakis is relentless in his thoughts. Varoufakis, while “presenting the EU a set of proposals for deep reforms”, asked for an optimistic message from Angela Merkel to the undermined Greek people.

“Moralistic objections to helping Greece abound, denying its people a shot at achieving their own renaissance. Greater austerity is being demanded from an economy that is on its knees, owing to the heftiest dose of austerity any country has ever had to endure in peacetime. No offer of debt relief. No plan for boosting investment. And certainly, as of yet, no “Speech of Hope” for this fallen people.”

That'd be cool if it happened, but sadly we're still waiting and time is running out. And again, those reforms proposed were clearly not enough for the Troika.

Euro or not for the Greeks is not a political question. It is about the laws of economics by Tor Vollalokken

And here we have three reasons why this deal isn't happening, at least for now:

“• the Greeks want to keep the Euro but they do not want to do what is needed to have it
• the Greek government wants to keep the Euro but doesn’t want to tell people - nor to implement policies - which would eliminate the need for a depreciating currency
• Euro area countries want to keep Greece as a member and for Greece to have Euro as its currency but don’t want to restructure Greece’ debt to an affordable level

They are all wrong for whatever reasons they have.”

Greece default and Grexit looks like the best option by Barbara Rockefeller

So, is this it? Is Grexit the best outcome?

“Greece should never have joined the eurozone in the first place. More of the same might gain a few months. It will resolve nothing, sapping Europe’s energy, and Greece’s potential, for years to come.
In a word, default and Grexit are the best options. Appreciate Greece for what it is. And it’s not Germany.”

And maybe at the end it won't be a big deal for the EUR.

“It’s possible, just, that the euro’s otherwise unaccountable resilience is down to a new acceptance that whether Greece goes or falls into line doesn’t matter very much. Greece is over as a factor, and it was not much of one in the first place.”

EUR: The End Of Complacency - Credit Agricole by eFXnews

Oh, wait. Here's a big bank that thinks otherwise:

“Our central case is still for a compromise to be found most likely in the form of a partial bailout extension in exchange for the implementation of some of the reforms. This should help avoid imminent default ahead of the IMF loan repayment next week.”

And, well, yeah, that actually should impact the EUR:

“Market uneasiness could grow ahead of the Eurogroup meeting and keep the downside pressure on EURUSD in place for now.”

Grexit, the IMF and Merkel: 3 reasons to sell the EUR by Valeria Bednarik

In fact, our own Chief Analyst thinks there's plenty of reasons to sell the EUR. She doesn't sound too optimistic about the common currency:

“The EUR's behavior these last two months, has not been for the faint of heart, as the pair has been moving back and forth in an almost 700 pips range, with wide intraday ranges and spikes of extreme volatility. The faith on the pair rests in two troubled legs, a US FED's rate hike, and the possibility of a Grexit.”

So, who knows? Stay tuned. This Greek Tragedy is far from over.