Grab your popcorn and hold onto your seats folks, because it looks like this movie (already longer than a Tolkien trilogy) might be heading for its grand finale.
While our American friends are getting ready to celebrate July 4th, it looks like we may see some fireworks from this side of the Atlantic in the coming few week also, following one of the most over-reported financial sagas in the financial press in the last 6 months (even Janet Yellen’s Facebook count has waned of late).
For those of you who have been numbed by the amount of coverage the Greek tragedy has received – or may have merely tuned it out – here is a brief overview of where we stand and why there are now essentially only 3 likely possible endings left to this script and not a lot of paper left to write it on.
Greece is in an impossible position… it cannot stay afloat without the assistance of additional EU-IMF financing conditionally promised to it and it cannot even pay its short-term bills (public sector salaries, pensions, security payments). Here is a visual summary of the end-June to August timeline:
The (internationally) pertinent payments – apart from the EUR 1.5bn roll-over lump sum payment due this week to the IMF, should this be made – are the payments due to the ECB in July and August. Non-payment of any of these (which are materially larger than the EUR 1.5bn owed by 30 June) would trigger either a technical or outright default, resulting in Greece’s cost of debt sky-rocketing, potentially leaving it with little other option than to resort to printing Drachmas again.
Say what you want, but no-one can claim that they did not see this one coming for some time now. Exactly how it will impact markets (either positively if Greece strikes a deal, or tumultuously if a default becomes official) is of course still unknown, which is why one needs to be appropriately positioned for the likelihood of both these (opposite) outcomes – which is possible, but of course easier said than done.
Alexis Tsipras has one last stall-tactic left up his sleeve and he has now played that card – having phoned a finance minister friend, and asked the computer for a 50-50 - he now used his last available lifeline by asking the audience and calling for a Greek referendum on 5 July to let the voters decide (and arguably in a last ditched attempt to save face with his electorate).
It is an astute move, as regardless of outcome he can now hide behind the inevitability of the conclusion by saying “it was the will of the people”. That inevitability however, is that the Greek banking system and its people are likely to face substantial hardship in the months and years to come, whether that is a bitter pill taken in small doses (IMF/ECS loans and the commensurate conditional austerity) or in one foul gulp in the form of a default and potential exit from the EU.
Many commentators are still wagering that the IMF/ECB/EU will soften its stance, but this would create a precedent and assuredly pave the way for other EU countries to line up at the trough and demand similar preferential treatment. The alternative of course is a Greek exit from the EU, for which the financial tremors will not be the economic demise of Greece itself, but the potential blueprint for the unravelling of the EU.
Francois Cilliers, Independent Investment Partners