Let’s see…a heavily-indebted country can’t pay its bills, engages in a long series of failed attempts to manage a partial, controlled default, sees most of its capital flee to safer venues, and then, in a final act of desperation, imposes capital controls.
But it quickly realizes that it’s too late. Capital controls, to the extent that they ever work, have to be imposed by surprise, while there’s still some capital to control. If you wait until everyone expects them, the banks empty out in anticipation and you’ve locked a barn sans horses.
That’s pretty much what Greece is looking at in the next couple of weeks. Though a bailout remains possible, the markets have decided that it’s no longer a sure thing and capital is streaming towards the exit:
Greece bonds, stocks collapsing as the market re-panics
(MarketWatch) – This time we’re really panicking. That’s what some markets seem to be saying this morning on the heels of failed talks over the weekend between Greece and its European creditors.
Those discussions lasted anywhere between 45 minutes to an hour, with the breakdown a painful reminder of the fact that the International Monetary Fund bailed on its own talks with Greece last week. The can has now been kicked all the way to the last-stand June 25 European Union leaders summit in Brussels, where some say Prime Minister Alexis Tsipras has all his hopes riding.
But there’s also a meeting of Eurogroup finance ministers on Thursday, and many are looking anxiously for Athens to come up with new reform proposals ahead of that. June 30 remains the big line in the sand as Greece has a 1.6-billion-euro ($1.8 billion) payment to the IMF looming, after it bundled all its four June repayments into one.
The question is, what will markets do in the meantime? At least as far as Greek bonds and stocks are concerned, maybe just keep panicking. The yield on the 10-year Greek bond pushed above 12% in Europe’s morning, on track for its highest close since late April. It was up 90 basis points at 12.72%, according to electronic trading platform Tradeweb. The yield on 2-year bonds surged 3.9 percentage points to 28.66%.
