"Trojan Horse" Policy

So far, the Greek blackmail can be considered as partially successful. The new key date - July 20 will be the date of IMF 3.5 bln euros debt repayment.
The Greek referendum proved once again that there are issues in this word that are to be resolved exceptionally by professionals, and it's best not to involve average people into them. The nation of Greece has said "no" (61.31%) to repayment of European debts and strict domestic saving. The habit to live on other people's dime did not allow Greeks to be objective especially when the government was actively pushing them to the "right" decision. People hope that it is the government that will be to blame for consequences, if not the present one - than the new one. The consequences in the form of Greek economic chaos are yet to come. The next Eurogroup's meeting on Greece will begin on the morning of June 7 - ministers of finance will discuss preparation, and the summit of EU-member leaders is planned on the issue of the Greek crisis on the evening of the same day. Europe is not yet ready to forgive debts, and the referendum has not moved the situation closer to solving the debt problem - the language of ultimatums and threats is still in use. Tsipras and Merkel coordinated the new proposals that Athens made in the course of the summit. By mutual consent, Varoufakis was removed from the process framework.

Meanwhile, the ranks of creditors are going through confusion that has been quite habitual lately - no one has a clear picture of what to do next. Here are some possible variants:

Purely Greek: Eurozone partners will offer Greece a more comfortable program – it is unlikely.

Default, and Greece stays in the team: there is no direct recapitalization of Greek banks on the part of Eurozone, and the government uses only domestic fiancnial resources – it is moderately unlikely.

New agreement: the political dependance on the closed banking system will grow. "Syriza" will change to "National Unity", and creditors will make new agreements – it is unlikely.

Default and Greece willleave: the scenario is considered as basic as much as Tsipras woud declare that the referendum "no" will not result in that.

Greece will hardly have an adequate assessment of its condition, while its historical military tactics produce their results. There is some information that the first Greek creditor has already given up - a preliminary report on analysis of the Greek debt stability with an unexpected conclusion regarding the need for restructuring was posted on the IMF website. That package includes additional Greece's debt in the amount of 60 bln euros. As back as in the IMF review for May 2014, the Greek debt was considered as stable but vulnerable to price "shocks". Within this year, darting from complete negation of a compromise to all degrees of easing has been experienced; however, today, in the midst of investors' panic, IMF offers the following:

- Partial restructuring of debt (prolongation of about 30% of and writing off up to 23% of the debt);
- Loan of 60 bln euros for servicing of the current debt and the principal debt;
- Possibility of transfer of all payments for 20 years (that will allow Greece to stabilize the situation in its economy and pay the creditors in the future).

So far, the Greek blackmail can be considered as partially successful. The new key date - July 20 will be the date of IMF 3.5 bln euros debt repayment. Besides Greek battles on the European market, we can note the searches made by the National Bank of Switzerland with regard to new methods of influence on franc, which has refused to get cheaper. Even now, CHF experiences serious demand from buyers; Greece has only magnified it, and strong franc, in its turn, has put pressure on Swiss exporters. For the first time in 10 years, it is possible that control over the movement of capital and limitations on withdrawal of cash will be introduced both for national consumers and foreign investors. For now, only interventations by the Swiss National Bank have been used, and banks have not yet introduced negative deposit rates, fearing outflows of deposits. Nevertheless, pairs with franc should expect serious volatility in the nearest future.

Greek risks promise to reflect on other currencies for a long time. Analysts do not rule out the possibility of USD/JPY rate decline to the level of 120.00 as soon as by the end of this month. American markets have been quite reserved in their response to the referendum - the Federal Reserve has shown wait-and-see attitude, and refrained from making political conclusions; however, Greece's pull out from Eurozone will have a strong impact in American markets. On Friday, Yellen will have an opporunity to make the first comments (and also, when she speaks at the Congress next week). Today, it not worth to open short positions in euro based on the referendum results only. So far, there are no other conditions for serious easing, the situation on the bond market is quite controllable, there is no chain reaction in the Eurozone countries yet, ECB has no need for sizable increase of Euro-QE volume. FRS policy perspectives are more important for euro; in the midst of tightening the Greek "dead loop", they can strengthen dollar and force the rate increase dates to be reviewed again.

Author: Navsher Bartash,
ForexChief Currency strategist