Grexit: Catasrophe or not?

Grexit: Catasrophe or not?

So… as snow continues to make it difficult for New Yorkers and East-Coasters to get anything done, across the waters in the EU, Greece is having a hard time getting things done as well, as it saw no agreement with its creditors despite both sides saying they were willing to negotiate more if needed. So what’s going on with Greece and its peers? Here are the highlights.

Greece has until Friday

Head of the Euro-group, Jeroen Dijsselbloem has said Greece now has until Friday to formally request a bailout extension, which he believes is the best way for Greece to continue to finance itself, whilst they continue negotiations around a long term solution. The problem for Greece is that an extension of the same bailout doesn’t change anything and Syriza weren’t elected based on promises of more of the same.

Collateral Clock is Ticking

Time is running out for Greek banks as well, with JP Morgan calculating that they will run out of collateral in as few as 14 weeks, assuming cash withdrawals stay around the €2bn per week level that they currently are. With such a short amount of time, it is very likely that, if this drags on, there will have to be some sort of capital controls put in place to prevent a run on the banks which would put them out of operation.

Portuguese are Scared

If Greece do get a better deal from Europe, or leave the euro, Portugal then becomes the weakest member of Europe with the worst bailout deal.. As such we don’t think it would be long before we saw protests in Lisbon. A number of Portuguese politicians and businessmen already wrote an open letter to the leaders of government asking them to show “solidarity and understanding” towards Greece and to avoid engaging in “humiliation of other member states”.

Grexit May Not be Too Tragic

Mohamed El-Erian, chief economic adviser at Germany-based Allianz, told CNBC on Tuesday that a Greek exit from the euro would cause “short-term chaos,” but it would not bring the global economy to its knees. He expects short-term losses and a lot of volatility. “The reason it would not be a major catastrophe is because Europe has done a lot to navigate a Grexit [Greek exit].”

But nonetheless  the euro zone is under major pressure right now and that could be the reason why Mr. Euro is scared to make the smallest moves on the forex dance floor. Do you think Greece and the Euro can reach a deal by Friday?

Elsewhere in the World

Overnight we’ve seen Asian markets mixed, with China slightly up, despite news that house prices fell 5.1% in the month of January. The optimism in the face of the news could well be down to Chinese New Year holiday, which starts tomorrow.

From Australia, we saw the minutes from the central bank’s last meeting, where they decided to cut interest rates. Unsurprisingly the decision was motivated by a deteriorating economic outlook, but their decision was brought forward a month because they wanted to use their quarterly economic statement, released three days after the cut, to be able to explain their motivations. The RBA are still pushing for a weaker Aussie Dollar, with a number of comments around it’s continued strength (despite it being 15% weaker than it was in September) and are hopeful that getting one would mean they are able to re-balance the economy.

Today we look at UK inflation data, the German ZEW index and, form the US, the empire manufacturing survey. On top of the data, we won’t be surprised to hear European finance ministers and central bankers making comments over the Greece situation, which is still going to dominate risk sentiment until some kind of resolution is found.