It’s showdown time between Greece and the the rest of the European Union. Despite the now months long bitterly acrimonious negotiations between heavily indebted Greece and its creditors, political analysts say there is still a chance of an 11th hour deal that would prevent a complete Greek default and see the country remain in the EU and perhaps even stay in the monetary union.
The Greek government sent the global economy into a tailspin on Friday afternoon when it announced it was rejecting the latest “ultimatum” from its creditors and was calling a national referendum on the matter. Greek PM Tsipras said he would urge the citizens of Greece to vote “no” to tyranny and austerity, and “yes” to European solidarity. European leaders somewhat cynically claimed to “shocked” by this move from Greece and claimed that the government had unilaterally withdrawn from negotiations.
Latest developments in Greece include bank closures, capital controls
After the announcement of the plan for a referendum in Greece, the European Central Bank made the call to not extend additional emergency finance to the Greek banks, after the breakdown of talks on giving heavily indebted Greece the last payment of its international bailout. The ECB will continue to supply the same amount of support it was providing late last week, but that is not expected to been enough to meet the demand for withdrawals.
Given the ECB announcement and the lack of cash, the Greek Central Bank said all banks would be closed through July 6th. People in Greece say that cash machines (ATMS) are working, but customers can only take out a limited amount of cash.
Another major deadline ls coming up on Tuesday, when Greece is supposed to repay €1.6 billion ($1.75 billion) to the International Monetary Fund, coincidentally the very day the “Troika” bailout expires.
Keep in mind the Greek parliament also voted over the weekend to move ahead with a nationwide public referendum regarding the latest offer from its creditors (ie, the EU and the IMF).
Odds of Grexit increasing
A number of analysts have increased their odds of a Grexit from the monetary union and/or the EU with the news over the weekend, including Morgan Stanley raising their 12-18-month Grexit probability to 60% from 45%.
In other news, the French cabinet convented on Monday in an emergency session. French President Francois Hollande said following the meeting that a deal could still be possible if the Greeks wanted it. “There are a few hours before the negotiation is definitively closed, in particular for the prolongation of the Greek aid programme,” Hollande said.
A spokesperson for German Chancellor Angela Merkel noted that she was “ready for further talks” with the Greek PM Tsipras “if he actually wants to” continue negotiations.
Stock markets crashing, Euro dropping
Stock markets across the globe are getting hammered on the bad news from Greece. European indexes were all down in the 2% to 5% range, and U.S stock markets were down around 1% in early trading.
Bond prices also moved up smartly as the yield on the 10-year Treasury note dropped to 2.39%.