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26 Jan 2015
Watch for increase in daily EUR risk headlines
FXStreet (Bali) - Now that the political landscape for a new Greek government has cleared up, with a coalition government formed by Syriza and ANEL looking likely, traders should embrace themselves for a few weeks plenty of EUR-risk headlines.
Syriza has claimed the victory, but the hardest task is ahead, that is, deliver on its election campaign's promises, with the most pressing issue a re-negotiation of Greece's debt program with its European counterparts. Syriza will have no time to waste, as the current bailout extension is set to expire at the end of February.
Raoul Ruparel, Head of Economic Research at Open Europe Think-Tank: "If no programme is in place, this could see Greek banks lose access to ECB funding as Greek bonds will no longer be eligible as collateral. With uncertainty over the bailout programme, the ECB could also choose to apply pressure by threatening to cut off access to the Emergency Liquidity Assistance (ELA), as it did with Cyprus in 2013."
As soon as the new Greek government is officially established later this week, we should expect a frenzy of headlines to hit the wires on a daily basis, with comments from Greece's new designated PM Tsipras to be closely watched, as well as the Troika's position on the expected heated negotiations to be conducted in the weeks to come. The tough negotiations ahead should result in a significant increase in EUR risk headlines, most likely to result in increased EUR volatility until the picture clears up.
As Ruparel adds: "Greece also has significant bond repayments in July and August, totalling over €7bn. With cash reserves already at a record low of €2bn and reports of numerous taxes going unpaid since the Presidential election was called in December, the new government will be short on cash. SYRIZA’s answer is to issue more T-bills (short term government debt) but this would require approval from the EU/IMF/ECB Troika. If they went ahead anyway, the only buyers would be Greek banks, however, they require liquidity from the ECB to make such purchases."
Syriza has claimed the victory, but the hardest task is ahead, that is, deliver on its election campaign's promises, with the most pressing issue a re-negotiation of Greece's debt program with its European counterparts. Syriza will have no time to waste, as the current bailout extension is set to expire at the end of February.
Raoul Ruparel, Head of Economic Research at Open Europe Think-Tank: "If no programme is in place, this could see Greek banks lose access to ECB funding as Greek bonds will no longer be eligible as collateral. With uncertainty over the bailout programme, the ECB could also choose to apply pressure by threatening to cut off access to the Emergency Liquidity Assistance (ELA), as it did with Cyprus in 2013."
As soon as the new Greek government is officially established later this week, we should expect a frenzy of headlines to hit the wires on a daily basis, with comments from Greece's new designated PM Tsipras to be closely watched, as well as the Troika's position on the expected heated negotiations to be conducted in the weeks to come. The tough negotiations ahead should result in a significant increase in EUR risk headlines, most likely to result in increased EUR volatility until the picture clears up.
As Ruparel adds: "Greece also has significant bond repayments in July and August, totalling over €7bn. With cash reserves already at a record low of €2bn and reports of numerous taxes going unpaid since the Presidential election was called in December, the new government will be short on cash. SYRIZA’s answer is to issue more T-bills (short term government debt) but this would require approval from the EU/IMF/ECB Troika. If they went ahead anyway, the only buyers would be Greek banks, however, they require liquidity from the ECB to make such purchases."