Traders are asking this question on a daily basis before they place any trade if Greece has become one step more close to leave the euro zone. The answer to that question is yes, with everyday passing, the country is struggling to survive and has very limited room to breath.
Yesterday, the ECB confirmed that they are willing to keep the life line on for the Greek banks, but the cost will be increased further. It is like having a patient in a hospital which is facing a death threatening disease with limited budget for his treatment and the hospital agree to treat him, but increase the cost of his medicine which will make him die more quickly due to lack of funds. This is pretty much what the ECB did when they increased the hair cut and maintained their ELA commitment. The banks will run out of gas before the deadline line of the 20th of July will approach.
Every day, the odds of Greece leaving the Eurozone are moving higher and we do think that they stand at 60% and the country will very soon have no option but to issue their own currency and that will be the last day when you will say that the euro was irreversible currency or atleast it’s birth took place on this concept. The next big question then will be who is next? Which country will follow this precedent path.
Surprisingly, still the bond markets are not showing any sign of spill over effects as their 10 year bond yields are sailing in calm sea. However, it will be only a matter of minutes when this calm sailing will have to wake up to a massive tsunami which will be beyond their control.
Yes, there is no doubt that the Greek economy is very small as compared to the size of the Eurozone economy and perhaps the ECB has enough firewalls which can prevent the spill over effects or perhaps it can use one of the many tools which they have promised to do so incase if they need it. However, the indirect impact of this shock could bring even bigger disaster than anyone can imagine, such as lack of confidence amid investors or lack of demand for liquidity and the implications of these effects could have far bigger consequences.
Nonetheless, the ECB leaders have decided to meet once again today and will be discussing the Greek agenda, but if they will include debt relief as a part of their discussion is a complete different question. Yes, the players may have changed with the Greek finance minister leaving the stage but the game is still very much the same and Greece is determined to stand by his agenda of debt relief.