Greek Debt Concerns Put GREK In Focus

Investors have been worried over the debt negotiations between Greece and its creditors this year. This also had a negative impact on the major benchmarks. Recently, Greek Prime Minister Alexis Tsipras submitted fresh proposals before its creditors to settle the debt crisis.

Meanwhile, Greece failed to repay a debt of around $338.7 million to the International Monetary Fund (IMF) and decided to bundle four June payments into one, to be paid on Jun 30. Separately, Tsipras is looking for support from his Syriza party on this matter. However, the situation is not in his favor at this moment. Several members wanted a re-election if Tsipras lets the creditors have their say.
 
“Realistic” Proposals
 
New proposals are reported to consist of concessions on stricter austerity targets. Reportedly, it includes a hike in the VAT (value added tax) rate, among other financing options that will buy Greece time to strike a deal next March. It was also reported that the finance minister Yanis Varoufakis came up with an idea to transfer the debt held by the European Central Bank (ECB) to the European Stability Mechanism, Euro zone’s crisis-fighting fund (read: Greek ETF Faces Volatility on ECB Move).
 
After submitting these proposals, Tsipras said he believes that Greece will be able to strike an agreement regarding debt negotiations in the near future. Though it was reported that the creditors may consider extending the country’s bailout program till the end of March 2016, creditors sounded not so optimistic about the proposals. It was reported that the creditors, including IMF, may consider the extension if Athens implements measures including pension cuts, tax increases and other policies.
 
Will ‘Grexit’ Happen?
 
It is speculated that nobody wants the nation to exit the common currency bloc and thus Greece is poised to play “the game for as long as they can.” Grexit may lead to instability in the currency union, which other members of the EU would like to avoid. In this scenario, the “Grexit” prospect seems unlikely.
 
Meanwhile, German Chancellor Angela Merkel and French President François Hollande agreed to meet Greek Prime Minister Alexis Tsipras on the sidelines of a Brussels summit to defuse the standoff between Greece and its creditors over the country’s bailout program. Moreover, the European Central Bank (ECB) increased the amount Greek banks can borrow from their central bank to $94.1 billion, the highest increase since Feb 18.
 
Separately, the New York Times’ Paul Krugman pointed out that Greece has already done a large volume of adjustments, the cost of which is so huge that the country should have been in a better position if it had exited the euro in 2010 (read: GREK ETF in Focus on Bailout Extension).
 
He noted: “You can make an even better case that Greece would have been much better off if it had never joined in the first place. But at this point these are sunk costs. If Greece can negotiate a halfway reasonable compromise, one that more or less pauses further austerity, it’s hard to see that the risks of exit would be worth it.”