MARKET BRIEFING – LONDON OPEN 29.06.2015
It has been rumored for weeks and now these very rumors have come true. The Greek Government has announced capital controls on its banks. The move taken by the Greek Government was not a surprise and inevitable. There had been some hope that the European Central Bank would continue to support the country’s banking system through its emergency liquidity programme.
However the ELA programme was introduced to assist solvent banks that were suffering from the effects of a short term liquidity crisis and was never meant to be used as a tool to support one or other political agenda. Mean it or not the ECB chief Mario Draghi has taken a decision that sends the Greek State closer to the precipice and it only needs the slightest of pushes for the first sovereign default to occur within the Eurozone.
With the ELA capped by the ECB, what is even more upsetting for a Greek Government that campaigned on an election promise of no more debt is that if Greece does default the EUR 89 billion that the Greek banking system currently owes to the ECB will be added to the Greek national debt of EUR 323 billion.
The announcement by the Greek Government of capital controls on its banks now means that ordinary citizens can only withdraw EUR 60 a day. The Greek Prime Minister said “In the coming days, what is needed is patience and composure. The bank deposits of the Greek people are fully secure”. However he did not add that the deposits will be in Drachma.
So with 5 months of wasted opportunities we have come to the point where the Greek Government has to find EUR 1.6 billion to pay to the IMF by tomorrow June 30. It became obvious to all that as this deadline neared the Greek Government had no intention of making this payment without a new deal that solves the issue of debt viability.
The Greek Government has its red line that it does not want to cross. This being that those who have suffered the most during the long and drawn out recession, the pensioners and the public sector workers should not be hit.
It was the Greek Government’s preference that the burden be shared among the countries wealthy and businesses. I am very much against this policy as I feel that the motor of any successful economy are the middle classes and viable businesses.
I had a long discussion about this very subject over the weekend with a friend who holds a senior position in a successful Greek shipping company in Athens. When the subject of public sector salaries came up he said that state employees in the past had enjoyed privileges which they obtained through political favor but those days have long gone with salaries having been cut on average by some 40%. As for the pensioners, their majority of retirees are paid small monthly amounts and have to support with this money their extended family of unemployed sons and daughters.
He went on further to say that the current Government for all its failings had won the election because the political establishment of Greece had failed to stand up for the rights of its citizens. In my view SYRIZA promised the moon and the stars to the Greek people. Its election promises were never going to be achievable in the face of stiff opposition of the German Chancellor Angela Merkel and her political allies.
However there was a need to revisit the whole concept of European austerity as the medicine that was administered was poisoning the patient. The leaders of Europe have proclaimed on many occasions through the debt discussions that austerity had worked for Spain, Portugal and Ireland but has it in reality? I just see a sticking plastered that covers a large and festering wound.
What has followed on from austerity is the ECB now embarking on a plan of Quantitative Easing which generates even more debt. The longer term effects of QE are not known and it is unclear if the end result will be a stronger Europe. Do we actually need any more debt added to the already considerable pile that is owed?
Greece is an experiment on austerity taken to the extremes. An experiment that has gone on for too long, has effected too many people with disastrous consequences and destroyed the hopes and aspirations of the youth of an entire country.
The European project was meant to bring the nations of this continent together not to cause divisions of the haves and have nots. The Euro was good for only one country, the Germany. German industry through the cheap Euro allowed it to export BMW’s and Mercs to Greece and Spain. The citizens of these countries could afford to buy products because money was being thrown at them in the form of credit to both individuals and governments. In hindsight the debt should never have been taken but at the same time the big banks of Germany and France should have been more cautious with their policy on lending.
The current Greek Government did not create this debt mountain. This was due to the cosy relationship between successive Greek establishment governments and the Banks of Northern Europe. The SYRIZA government had every right to question the agreements that had been signed in the name of the Greek people because the leaders of PASOK and New Democracy had made a pig’s ear of what had gone on before.
I had mentioned in prior posts that a referendum was a strong possibility. The proposals on offer cut through the red lines of the SYRIZA Government. Prime Minister Tsipras had no other option but to put the proposal to the people. However capital controls create stark reality for Greek people leading up to referendum and could taint the outcome of the vote.
What we now have is a clash of ideologies. Will the democratic right of the Greek people prevail or will the referendum force the electorate to capitulate and vote in a plan that they do not like? I think that fear of a reintroduction of a much devalued Drachma would push the Greek population to vote yes.
If the “YES” vote wins on Sunday, the damage to the SYRIZA party would be immense. The scenario of the Prime Minister with views that reside on the radical left of the political spectrum having to implement policies of austerity does not sound a viable solution. I see another election being called shortly.
On the other hand, the Greek people are well known for their independent spirit. Although the “No” vote would cause the Greek people a lot of pain I believe that the damage caused to the Euro could have a wider impact. This is due to the shadow that the Spanish general election casts over the Euro project. In December Spain holds general elections. A victory for SYRIZA in Greece will become a beacon of hope for Podemos in Spain but also for populist groups of the left and right throughout Europe. The nightmare scenario for Chancellor Merkel is for Podemos to be victorious in Spain taking the whole European debt crisis to another level.
What is needed is a new plan for Europe. I argued for this when the Greek debt crisis once more took centre stage earlier in the year. There needs to be a real plan to address the huge sovereign debt levels throughout Europe. Time has become a commodity in short supply with deadline after deadline pushing the European project from crisis to crisis.
However time in reality is the one commodity that we have in abundance. The solution is very simple, create a more robust frame work for Eurozone sovereign debt and budget deficits and extend the tenure of the debt to 30, 50 or even 100 years. Such a move would allow for the playing field in Europe to be leveled and allow all the citizens of this great continent to work and prosper.
EURUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.1131
Target 2: 1.0877
Projected range in ATR’s: 0.0127
Daily control level: 1.2350
GBPUSD
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Target 1: 1.5804
Target 2: 1.5564
Projected range in ATR’s: 0.0120
Daily control level: 1.5800
USDJPY
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Trend 1 hour: Down
Target 1: 123.73
Target 2: 121.73
Projected range in ATR’s: 1.00
Daily control level: 124.00
USDCHF
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Trend 1 hour: Up
Target 1: 0.9484
Target 2: 1.223
Projected range in ATR’s: 0.0103
Daily control level: 0.9320
USDCAD
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Trend 1 hour: Up
Target 1: 1.2430
Target 2: 1.2238
Projected range in ATR’s: 0.0096
Daily control level: 1.2275
AUDUSD
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Trend 1 hour: Down
Target 1: 0.7798
Target 2: 0.7624
Projected range in ATR’s: 0.0087
Daily control level: 0.7770
GOLD
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Trend 1 hour: Up
Target 1: 1197.03
Target 2: 1171.51
Projected range in ATR’s: 12.76
Daily control level: 1170.45
OIL
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Trend 1 hour: Down
Target 1: 60.27
Target 2: 57.39
Projected range in ATR’s: 1.44
Daily control level: 60.00
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