Greece Lobs a Hail Mary

Markets Remain on a Knife's Edge, by Mike Larson, June 22, 2015 [Money and Markets]...

 

With the clock rapidly ticking down to zero, Greek officials lobbed a Hail Mary today. Specifically, they proposed additional tax increases and spending reductions to secure urgently needed aid from their European creditors. The new plan would modify pensions and value-added taxes in such a way that would mollify Europe, but also not provoke a backlash in Prime Minister Alexis Tsipras’ own Syriza party.

 

Euro-zone finance ministers didn’t sign off on the proposals at their emergency meeting today. It broke up without a concrete deal. But the head of Europe’s finance group, Jeroen Dijsselbloem, took a much more optimistic tone in post-meeting comments – suggesting a deal may be reached before the week is out. Greece’s Syriza party has submitted a proposal to creditors in an effort to prevent a collapse of the country’s finances.

 

Markets were clearly happy at the renewed signs of progress. Stocks jumped around the world, while credit markets calmed down, too. But the flood of money out of the Greek banking system showed no sign of letting up.

 

Withdrawals were so heavy in the last two business days that the European Central Bank had to raise its Emergency Liquidity Assistance limit again by roughly 2 billion euros. That was the third such hike in less than a week. Official capital controls haven’t been implemented … yet. But banks are “unofficially” limiting withdrawals to 3,000 euros, according to some reports.

 

Bottom line: Markets remain on a knife’s edge. We can easily swing 100, 200, or more points, depending on the latest batch of headlines coming out of Europe. Frankly, I’m sure you’re as sick of this as I am – and would rather get resolution one way or the other ASAP. The good news is, that appears to be forthcoming over the next couple of days.

 

“Markets remain on a knife’s edge.”

 

So what do you think will happen? Is this latest proposal the breakthrough Europe needs to move on? Or are we going to be right back in the soup again soon? Do you think other countries besides Greece are going to run into the very same debt problems? Or is this going to be the end of the European debt crisis? I’m very interested in hearing your thoughts over at the website.

 

Our Readers Speak

 

Meanwhile, in response to the pre-weekend wrangling over in Europe, many of you weighed in already.

 

Reader Fred1 said: “The situation in Greece is very bad, and their Socialist leader behaves like OUR Socialist leader: More spending and more borrowing when the larder is empty.

 

“Well, the end of the road appears nigh for Greece now and it looks like it will be time to pay the piper. No man, no country and/or no entity can continually spend significantly more money than it makes, and these bank runs will be just the first of many bad things coming for Greece.”

 

Reader Alinn picked up on that theme as well, saying: “The Greek government has its head in the sand about their financial crisis. From my experience with Greeks, they are very arrogant and believe they are entitled to get what they want.”

 

Reader Jim said it’s important to view the crisis with an eye to geopolitics. His take: “For over one hundred years, the Europeans have used Greece as a barrier against expansion from the East. First the Ottoman Empire, then the Communists. The possibility of the Russians or Chinese occupying Greek naval bases is unthinkable for them. This isn’t about economics, but geopolitics. They will deny reality and figure out a way to kick the can further down the road.”

 

Reader Tom said he’s not all that concerned, even if Greece does default. Why?  “American markets have already priced in a Greek default. It’s old news. The question is, if Greece does NOT default, how will it affect the markets? The Fed?

 

“Greece is a fairly small country (11 million people or so) and has little impact on most companies. It seems to me that the pressure now is all on Germany to make a deal. In most scenarios, the U.S. stock market will be largely unaffected by what happens to Greece. Buy the dips.”

 

Thanks for your input. If you haven’t had the chance to contribute yet, I urge you to do so at the website.

 

Market RoundupDow+103.83 to 18,119.78S&P+12.86 to 2,122.85NASDAQ+36.97 to 5,153.9710-YR Yield+0.093 to 2.36%Gold-$16.60 to $1,185.20Oil+$0.07 to $59.68

 

Source: Mike Larson, money and markets.com