Week ahead & in review: Uncharted territory in Greece

Week in review: All about Greece

Following weeks of intense negotiations to extend the bailout programme, talks collapsed last week, as Greek PM Tsipras called for a referendum on the measures required by Greece’s creditors, due to take place on Sunday 5 July. A bailout extension until the day of the referendum was rejected. Anyway, PM Tsipras has sent a new request which was leaked this morning by the FT and a temporary extension may yet be agreed on, though that is unlikely.

Following these news the ECB decided on Sunday to leave unchanged the amount of lending to Greek banks under its emergency lending facility (ELA) at the same level as Friday 26th. In order to avoid a bank run and the collapse of the financial system that is currently under significant stress, the Government has imposed capital controls, closing banks until after the referendum, forbidding withdrawals over 60 euros daily and pre-approval of all transfers to accounts abroad. The European Commission has considered these measures appropriate to contain the short term risks to the financial sector but request that capital controls be lifted as soon as possible.

Our expectations for the coming days are:

  • Greece will most likely default on its IMF payment tomorrow, which will lead to a suspension of all funding from the IMF to Greece. The bailout programme also ends tomorrow.
  • Should negotiations continue this week, they are unlikely to lead to any new offer from Greece’s creditors.The Greek Government will campaign against the bailout conditions.
  • The referendum, which will be about the bailout conditions, will effectively be about staying or not in the euro area. The Greek people will most likely vote yes, with a comfortable majority.
  • PM Tsipras has promised it will implement the conditions requested by creditors if Greeks vote yes, so talks with creditors are likely to resume. Given that the bailout programme has ended, the conditions voted on will probably be a base for negotiating a new bailout programme.
  • Implementation is likely to require at least a significant reshuffle of Government, if not new elections

Elsewhere in the world, consumer spending in the US jumped 0.9 per cent in May after 0.1 per cent rise in April and the strongest rise since August 2009, due to stronger incomes. This reinforces evidence that the economy rebounded in the second quarter and may man that the Federal Reserve will effectively hike rates at the September meeting.

In Portugal, the domestic financial sector has continued to deleverage in the first quarter of 2015. The stock of credit issued by domestic monetary financial institutions to Portuguese residents fell to € 250 bn in March 2015, down from 252 bn in December 2014. Since the peak of € 297 bn in June 2011, credit to the non financial sector (excluding Public Administrations) fell almost 20%. The National Statistics reported the resident population in Portugal by the end of 2014 was estimated at 10,374,822 inhabitants; the balance for 2014 reveals a decrease of -52,479 inhabitants, both as a result of a negative natural balance (-22,423) and a negative net migration (-30,056). Inflation rose significantly in May, reaching 1%yoy. This was mainly due to the rise in the price of transports. Core inflation had also risen to 0.7%yoy after 0.5%yoy in April.


Week ahead: Greece will dominate headlines with the referendum being held on Sunday. We expect a large majority in favour of the bailout conditions In other news:

Monday 29 June

  • Economic and Consumer Sentiment (June 2015, Eu Commission): these data may shed new light on the expectations for growth in the second semester

Tuesday 30 Jun

  • Credit (May 2015, Bank of Portugal)
  • Unemployment Rate (May 2015, Eurostat): no major changes expected
  • Euro area inflation flash estimate (June 2015, Eurostat): after 0.3%yoy in May, inflation is not expected to rise above 0.5%

Wednesday 01 July

  • ECB minutes of previous meeting: likely to reflect the concerns about the Greek situation.
  • Eurozone manufacturing PMI (June 2015, Markit): expected to remain unchanged at 52.5, consistent with moderate growth
  • US ISM Manufacturing (June 2015 ISM): seen rising further to over 53, from 52.8, as the economy continues to strengthen after a weak Q1

Thursday 02 July

  • US nonfarm payrolls: expect a 230k rise after 280k, poitning to a sustained recovery and boosting the case for the hawks at the Fed

Friday 03 July

  • Eurozone Composite PMI (June 2015, Markit):

Sunday 5 July

  • Greek referendum