Greek deal edges closer concerns over German vote and IMF involvement

18 August, 2015

Matthew Boyle

Yesterday was a fairly quiet start to the week with little data of note. The main news of the day was the mornings Eurozone trade balance data released which showed a positive increase during the month of June to €21.9B Euros from a predicted €19.3B. As a result the Euro strengthened following this gaining just under a cent against GBP, whilst against the USD it remained a little more stagnant. Today however provides a much busier day for data. We have already seen in the Early hours of this morning the RBA meetings minutes were released. Although they seemed slightly more upbeat the consensus was that there would likely be a further depreciation of AUD which would help encourage exports, and suggested a more neutral stance for any further rate cuts. As a result this morning we have seen AUD lose some ground – notably a cent against GBP.

This morning it is the UK though that dominates as we see a raft of reports including inflation and producer and retail price indexes, whilst in the afternoon the U.S takes centre stage with housing stats and building permit data. There is no data released from Europe today, however with so much going on politically don’t necessarily expect the single currency to remain stable.

Interestingly despite news that the Greek parliament passed the vote for the bailout the markets opened yesterday with a weaker Euro than last week, which is surprising given many would assume the opposite. However as we have seen in recent weeks the mainstream medias reporting of events has focused on the headline news as opposed to focusing on the finer detail, and what we are concerned with – what will move the rates? Yes Greece have passed the vote for a 3rd bailout, however this is far from a “done-deal” and there are still some big considerations. Now Greece have voted the bill must be ratified by the various European parliaments, with the German vote occurring on Wednesday. As it stands there is serious concern as to whether the bill will pass through German parliament with a large degree of debate over whether or not the IMF will be involved in this 3rd round. Around 120 members of the German parliament are thought to object to the bill, citing that if the IMF are not part of the bill that they do not want to go ahead given that Germany are the most invested in Greek debt.

This has resulted in somewhat of a stalemate it would seem as whilst Germany staunchly oppose and “haircut” of Greek debt the IMF are standing firm suggesting that without either this haircut or further Greek reforms that they will not take part as this bailout would be unsustainable. So whilst Merkel is stating that the IMF will come on board and is working furiously to bring German finance Minister Shauble onboard who holds the power to turn some of the opposition, Christine Lagarde the Head of the IMF seems to be providing serious resistance to the 3rd bailout. As a result it would seem that the market is reacting cautiously, explaining the weaker Euro this morning. Don’t be surprised if the next few days are a turbulent one as more news comes from the various European countries, with the focus sitting with the Germans. Certainly Merkel is known for her political prowess so one wouldn’t rule out her managing to pass the bill through the German parliament. However this does not guarantee the IMFs involvement and would therefore leave a huge shortfall in the amount of funds that Greece need.

In short Greece are close but are by no means out of the woods and this situation could cause further problems for Greece and the Euro. With much happening in the next few days stay in close contact with your C.I account manager who can help you keep well informed of events to avoid being caught out by any costly movements in market rates.