Euro Leaders Meet Again as Greek Default Looms

It looks set to be another tense day of negotiations on Thursday after the eurogroup meeting on Wednesday ended with no agreement being reached forcing them to reconvene this morning only hours before the E.U. summit, at which any agreement was intended to be signed off.

The timetable for this deal to be done is getting tighter by the day, with Tuesday’s final deadline fast approaching. Many deadlines have come and gone but Tuesday is the day that Greece must repay €1.6 billion to the International Monetary Fund. Without the funds that it would receive as part of a deal, it cannot afford to make this repayment at which point it will have defaulted on its debt. Given that 30 June also marks the end of its current bailout program, the chain of events that could follow would be disastrous for Greece and not too pleasant either for the eurozone.

Before the funds can be disbursed, any deal must be passed through the parliaments of Greece and its creditors which means that, really, it needs to be signed off by Friday at the latest. Unfortunately, given the differences between what Greece and the IMF will accept, it is difficult to see under what circumstances a deal can be reached. Even if Greek Prime Minister Alexis Tsipras does cave to the demands of the IMF he knows that he would instantly lose the support of the Syriza party, it’s a lose lose situation. It’s tough to see how the current deadlock can be broken.

It has been suggested that finance ministers could opt to release profits from the European Central Bank’s Securities Markets Program which could be approved faster if a deal is reached. The profits relate to bonds held last year and up to this point this year and apparently equate to around €3.35 billion. The only problem again here though is that finance ministers are extremely unlikely to release the funds without a deal being agreed, which brings us back to the initial problem. The only thing it would achieve is that it may give finance minister until early next week to come to an agreement, which at this rate doesn’t seem too unlikely.

Needless to say, it is likely to be another eventful day. With talks failing at the eurogroup meeting and between Tsipras and the creditors yesterday evening, it is difficult to be optimistic that today will be any different. There’s likely to be plenty more comments coming from the sidelines of the eurogroup meeting and the E.U. summit today which could make things quite tense and volatile in the markets.

There is some data being released alongside all of this drama but it will predominantly come from the U.S. this afternoon. Ahead of the U.S. open, we’ll get core personal consumption expenditure price index data for May – the Federal Reserve’s preferred measure of inflation – as well as personal income and spending figures and weekly jobless claims. Shortly after we’ll get the flash U.S. services and composite PMI readings and hear from Jerome Powell, a voting member of the Federal Open Markets Committee (FOMC).

The FTSE is expected to open 15 points lower, the CAC 27 points lower and the DAX 50 points lower.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.