Greece in the last chance saloon

Deal or no deal?

Europe is really drinking in the last chance saloon today with another emergency summit of EU leaders to take place this afternoon. Alexis Tsipras was told yesterday by Angela Merkel, fresh from her meeting with Francois Hollande, that he must come to Brussels today with an updated proposal. Funnily enough, according to the Greek government, the proposal that they argue for later today will be based on the last plan put forward by the EU. That is of course the one that the Greek people voted down in their droves at this weekend’s referendum.

Cash is running out in Greece as banks remain closed. July 20th remains the hardest of deadlines for Greece and we must see some form of restructuring of that EUR3.5bn bond repayment if the Greek banking system is set to remain in anyway functioning.

A new currency?

Not that it is functioning at the moment and one would have to think that scrip issuance – another currency printed and backed by the Greek government – will come into play as liquidity further evaporates. That is not to say that a Greek exit is a certainty should parallel currencies be introduced, although one would think that any remaining euros in the economy would be chased out by the new currency. Euro is not a haven for markets at the moment but will be for the Greeks within a rapidly depreciating local currency.

What is needed?

I think that we must see some form of debt forgiveness for Greece. A haircut would represent a very hot political potato and forms a dangerous precedent. The IMF has found itself isolated in the view that relief is needed – it will meet considerable political opposition in Europe, however, within the Bundesbank in particular.

Either way we are through the looking glass on Greece at the moment. It’s not so much as Alice in Wonderland as ‘Alexis in Weidmanland’. We’ll have to wait and see if anyone loses their head.

I discussed Greece this morning on Bloomberg TV and you can watch it in fullhere.

Markets more focused on China

The euro is wobbling with USD the main go-to currency this morning ahead of the European summit. Movements out of the Shanghai Stock Exchange have continued to damage global risk sentiment following a 27% decline in the index in the past month or so. Measures by the Chinese authorities to bid up equities have failed miserably. To ask the uncomfortable question, how long until we see the Chinese general public kick off now that the State-sponsored casino is starting to crumble? A lot of Chinese retail investors have lost a fortune in the past 4 weeks.

Oil slick

Brent crude was battered yesterday by 6% on a litany of issues. Oversupply remains of course but the lack of demand that is being forecast from China and other emerging markets given their slowing of economic output is the main driver at the moment. We must also think that in a world that could see a further increase in QE, speculators will be crying out for investments with a yield – oil has no yield.

Have a great day.