Dubai: The ‘No’ vote in Greek referendum on economic austerity measures to secure a deal with its creditors has further complicated the negotiations making a new deal appear distant, though not impossible, according to economists and analysts.
Clearly the new layer uncertainty is going to add to the chaos leading up to making business transactions difficult for GCC businesses with their Greek counterparts using the banking channels. Banks in Greece have remained closed following the introduction of capital controls on June 29.
“Payments have been clogging up for the whole of last week for our clients who have trade deals with Greek counterparts. With banks closed and uncertainty on liquidity and solvency of Greek banks, risk in underwriting credit to businesses dealing with Greece has gone up,” said the treasury head of a local bank.
Bankers said, normal functioning banks is very important to continue support business dealing with Greece. Following the referendum on Sunday, the Greek government has announced its willingness to go back to the negotiating table and get a deal that would lead to the opening of the banks as early as July 7.
But analysts say a quick resolution of the issue now looks bleak. “We think this is extremely optimistic as a ‘no’ outcome has caused the willingness for support to evaporate and makes everything more complicated,” said Eirini Tsekeridou, Fixed Income Analyst, Julius Baer.
Negotiations are expected to resume over the coming days but the probability of a deal looking distant. Greek government believes that it can now go back to the lenders in a stronger position. However, analysts believe it is unlikely the creditors’ proposals will be significantly relaxed as a result of the “no” vote.
“With depressing predictability there will be extensive negotiations taking place right now behind the scenes between Athens and its creditors. I suspect that there will be a degree of debt relief for Greece, but Eurozone leaders will be aware of the considerable consequences of softening their stance too much,” said Nigel Green, founder and chief executive of financial advisory firm deVere Group. “In the wider scheme, it remains unclear what has been ultimately achieved at this stage — except more chaos,” he said.
Although the ‘No’ vote appears a victory for the Syriza-led government, it will now be impossible for it to accept the deal currently on the table, which means that the risk of a total collapse in the negotiations has increased significantly.
“The referendum’s result adds another layer of uncertainty to a very uncertain situation. All eyes will now be on the ECB tomorrow. We expect the central bank to continue providing liquidity to Greece’s financial sector, although the small chance of the European Central Bank (ECB) increasing the cap on the emergency liquidity assistance this week has disappeared with the referendum result,” said Diego Iscaro, Senior Economist, IHS Global Insight.
With the ECB’s liquidity assistance cap remaining in force, it is unlikely that Greece will be able to lift the capital controls or open the banks for fear of run on deposits. On the contrary some analysts say, Greece will be forced to reduce the current withdrawal limits. Even with the current withdrawal limit of €60, the probability of banks running out of cash over the coming days has increased significantly. “We estimate it is very likely banks will not reopen on July 7 as currently expected. Moreover, the limit on bank withdrawals, currently at €60, may also need to be reduced,” said Iscaro.
The sudden resignation of Greece’s finance minister, Yanis Varoufakis, who took a strong stand in demanding that creditors write off some of his country’s debts, has added to the political intrigue in Athens. Although some analysts see this as a concession to European creditors who loathed his presence at negotiations, there are many who say this could be the first signs of split within Syriza and its coalition on how to deal with the current crisis
In the ensuing chaos, it appears very difficult to reach a debt deal ahead of July 20, which is when Greece’s next big payment is due. The €3.5 billion (Dh14.2 billion) payment to the ECB is far more significant than the missed IMF payment because defaulting on it would very likely cause the ECB to cut off its ELA to Greek banks, which in effect would stall Greece’s financial system, and force the government to print IOUs or even an alternative currency, effectively pushing it out of the Eurozone and endangering its EU membership as well.
“With Greeks already storming banks, queuing at now increasingly empty ATMs, ever barer supermarket shelves, and petrol stations running out of fuel, Greece is already looking eerily like Argentina in economic terms,” said deVere Group’s Green.