One Focus Today And It Is Not A Mistaken Document

Reports that Greek officials sent the wrong document to European officials have been denied. Today’s Eurogroup meeting, and even more importantly, the emergency heads of state meeting the only focus today. Initial indications from an aide to Juncker and EU’s Moscovici are supporting that progress will be achieved today.  

This has lift European equity market, with Athens gaining over 8%, led by the banks, and a significant rally in peripheral bond yields. The recent negative contagion has been replaced with positive contagion. There has been no Greek bank holiday as some had feared. Nor have capital controls been instituted, as German newspapers had suggested were likely. For the third time in five days, the ECB has lifted the ELA ceiling.  Reuters reports that weekend requests for deposit withdrawals over the weekend were near one billion euros  on top of the 4 bln that apparently were withdrawn last week.  

On June 18 we suggested the framework for a compromise was emerging. The brinkmanship tactics on both sides had indeed carried the situation to the brink. We also identified that key was not coming from Greece’s sovereign obligations, on which so many had focused. Rather our concern was with the Greek banks, the bleed of deposits amid (German) press reports playing up the imminence of capital controls. As was experienced in Cyprus, the capital controls included limits on ATM withdrawals. 

There is no formal mechanism to eject Greece from the monetary union, which by treaty is irrevocable. Claims that Greece should decided whether to be in EMU or not is to accept the framework that the creditors have put forward. Syriza was elected with a mandate to resist more austerity on an economy that is still contracting in nominal terms to o remain in the euro.  

Greece has not violated any high law in claiming its debt is unsustainable. Despite the pejorative claims of blackmail, Greece has said it wants to break the cycle of taking on more debt to service its existing debt. It is Greece, not the official creditors, who do not want to stick to the strategy of “extend and pretend.”