February 17

Greeks Walkout on Bailout Talks

Monday’s highly anticipated Eurogroup meeting to determine the fate of the Greek bailout program ended in disarray as  Greek officials called the terms of extending the deal “unacceptable”, adding they “wont take orders” on the subject of the bailout. The point of contention continues to be the draconian austerity measures built into the current program. Alexis Tsipras and his left wing Syriza party carry a mandate from the Greek electorate to cease the spending cuts and sacking of public workers, so an extension of the current agreement is not in line with their campaign promises to fight back against official creditors. that own most of their 300bn or so Euros in debt.

Greek debt

The impact in markets was somewhat muted, but there were noticeable moves in a holiday thinned New York trading session. S&P 500 E-mini futures decline after the headlines came out, falling from 2093 to 2081.  EURJPY fell sharply, breaking a four day support level at 135.00 and spilling down to lows of 134.00 before a bounce. It seems that any turmoil stemming from Greece will play out in this pair. Other currencies were mostly unaffected.
The calendar for the rest of the week is tentative, but it is likely there will be another all or nothing Eurogroup meeting on Friday. The ECB has its bi weekly vote of Greek ELA Wednesday, which will serve as a reminder that the ECB has the ability to ‘put the lights out’ on Greece every two weeks. Finance minister Varoufakis said after today’s meeting that he sees an agreement as likely within the next 48 hours but would not elaborate on why he is optimistic given that talks just broke down moments prior.

Varoufakis and Tsipras’ main goal is to negotiate an entirely new bailout plan with much less stringent austerity demands. Extending the current deal is not an option for them, more austerity is referred to as a “red line” which they will not cross. Nobody knows who is bluffing, and given Varoufakis specialization in game theory it makes sense that he may try to extend this game of chicken up until the very last moment. The referee in all this will be the ECB’s governing council, if they ever decide the remove ELA support Greek banks would almost instantly become insolvent which would force a Greek default and exit from the Euro.