The daily barrage of Greek news is overwhelming and investors are anchoring their decisions on any piece of noise which may indicate that Greece is safe and Europe has solved the problem which haunts financial markets for months. The solution is not coming and the 11th hour or shall we say 12th hour solution is as far away as at any time in the past months.
By Klaudiusz Sobczyk
What happens if the help is not provided before the IMF payment deadline past. It suggests that Greece will go into technical arrears to the IMF unless some additional source of funding is provided. One mooted possibility is that the ECB will raise the ceiling on Greek T-bill issuance. But that would require a high level of confidence that a deal is imminent. If that is not the case, the ECB might refuse to continue raising the ceiling for emergency liquidity to Greek banks, making the implementation of capital controls necessary. Or it may pull its support altogether, forcing Greece out of the euro.
How big a problem is Greece? If you know Germany and possibly a German regional state with the name Saarland at the border to France, this provides the perspective. It used to be economically very important region in the 1920s and 1930s as the major industrial area focused on steel and coal. If you do not know the area it does not really matter for a reason. Greece financial position is as relevant.
It is all financial talk but what about the geopolitical talk which is more important at the current moment. Greece as self-declared leftist country – at least at the current moment – threatens Europe with closer ties with China or Russia. This is reminiscent of the cold war time when leftist orientated countries were looking to attract support from Russia or China to oppose the “Western Imperialism”. At least semantically we are coming back into those dark days.
Europe supported Ukraine economically and politically so far. It is technically bankrupt but still well supported. The consequences of the failure of the government and political system are more than obvious. So appears with Greece. Europe will not give up on Greece in the centre of Europe with a very strategic positioning in the Mediterranean. A strong NATO partner with an oversized defence budget. It will be a very political decision which is not based on financial merit alone but rather a political one. The financial terms should provide a smoke and mirror background to the process. Europe and Greece want to finalise the proceedings with a straight face. They want to give the feeling to their electorate that the tax payer is not losing out in the process. Everything has been done to safeguard the tax payer and his money. At the end Europe will need to give in in order to keep Greece in EU and Euro. The geopolitical stability of the region needs to be safeguarded. This is obvious and the political forces know about the crucial strategic meaning. At the moment the financial issues are at the lime light. The geopolitical issues are at the background and not really well publicised. The markets should focus on long-term implications and the European desire to continue on the integration path.
The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.
Klaudiusz Sobczyk is a technical and quant investor with innovative approach to assets and markets. He is a founder and managing director at Advanced Dynamic Asset Management GmbH in Germany.
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