26 May 2015
Greece remains a source of EUR-weakness – DB
FXStreet (Edinburgh) - Analysts at Deutsche Bank assessed the current scenario in the Greek front.
Key Quotes
“As it currently stands, Greece has €1.6bn of redemptions due in June alone (of which €1.5bn are due to the IMF), starting on June 5th with a €310m payment”.
“Although we have little transparency on the government’s cash position, comments from both Greece officials and its creditors suggest that it looks increasingly difficult that Greece will be able to make the payment due on the 5th”.
“In the meantime, we appear to be no closer to a Staff Level Agreement needed to release funds. Given that progress continues to be slow and non-payment is looking increasingly more likely, we list below three potential scenarios as highlighted by DB’s Mark Wall in the Focus Europe piece last week”.
“The first scenario is where a Staff Level Agreement is made and approved by the Eurogroup, then even before we have had the national approvals, we would expect the ECB to accommodate the non-payment through letting the ELA and T-Bill ceiling rise to allow Greece to make payment”.
“The second scenario is similar to the first but where a referendum is called, resulting in adding 2-3 weeks to the timeframe. In this situation, we believe that the ECB would be willing to find a balanced solution and would envisage haircuts on collateral at the ELA being raised, but not enough to cap ELA and trigger capital controls”.
“The third scenario is where there is no Staff Level Agreement and Eurogroup approval. Although a non-payment on the IMF repayment would not necessarily be deemed a ‘default’ as per credit rating agencies, we believe that the ECB would view the lack of payment as rendering Greece insolvent”.
“A potential reaction would be to immediately cap ELA and force Greece to close its banks and reopen them under capital controls. A split deal and parallel currency have also been mentioned at various stages as other scenarios, however we deem these lower probability scenarios as of now”.
Key Quotes
“As it currently stands, Greece has €1.6bn of redemptions due in June alone (of which €1.5bn are due to the IMF), starting on June 5th with a €310m payment”.
“Although we have little transparency on the government’s cash position, comments from both Greece officials and its creditors suggest that it looks increasingly difficult that Greece will be able to make the payment due on the 5th”.
“In the meantime, we appear to be no closer to a Staff Level Agreement needed to release funds. Given that progress continues to be slow and non-payment is looking increasingly more likely, we list below three potential scenarios as highlighted by DB’s Mark Wall in the Focus Europe piece last week”.
“The first scenario is where a Staff Level Agreement is made and approved by the Eurogroup, then even before we have had the national approvals, we would expect the ECB to accommodate the non-payment through letting the ELA and T-Bill ceiling rise to allow Greece to make payment”.
“The second scenario is similar to the first but where a referendum is called, resulting in adding 2-3 weeks to the timeframe. In this situation, we believe that the ECB would be willing to find a balanced solution and would envisage haircuts on collateral at the ELA being raised, but not enough to cap ELA and trigger capital controls”.
“The third scenario is where there is no Staff Level Agreement and Eurogroup approval. Although a non-payment on the IMF repayment would not necessarily be deemed a ‘default’ as per credit rating agencies, we believe that the ECB would view the lack of payment as rendering Greece insolvent”.
“A potential reaction would be to immediately cap ELA and force Greece to close its banks and reopen them under capital controls. A split deal and parallel currency have also been mentioned at various stages as other scenarios, however we deem these lower probability scenarios as of now”.