CBA: Greece is staring into the abyss

KOS, GREECE – JUNE 03: Lightning strikes over the Greek Island of Pserimos on June 03, 2015 (Photo by Dan Kitwood/Getty Images)

Greece is quite literally the word when it comes to financial markets at present. After months of stalemate the nation is running out of time to secure a deal with its creditors to prevent a potential debt default.

Peter Dragicevich, senior currency and rate strategist at CBA, has put together an excellent note this afternoon that details the key dates and events markets should watch carefully.

Here’s why June 22 looms as an important data in his opinion.

“Crunch time in the negotiations is upon us. Near-term focus is on the Eurozone Finance Ministers meeting (the Eurogroup) on Thursday 18 June. This is the next juncture for major discussions to take place. Beyond that there is an EU leaders summit set for 25-26 June. There are also suggestions in the media that an emergency EU leader’s summit could be held on 20-21 June.

As each day passes without an agreement, hard deadline dates are coming closer into view. The second half of June looks to be a “make or break” period for Greece. Without the release of assistance funds, Greece could start to default on obligations. In addition to state pension and wages that need to be paid, Greece has external obligations due in coming weeks.

The procedural steps that need to be followed to unlock the next €7.2bn tranche of external assistance also accentuates the time constraints Greece is facing. Assuming a Staff Level Agreement between Greece and its international creditors can be reached relatively quickly, Eurozone Finance Ministers are still required to unanimously approve it, the Greek parliament must vote it through, various Eurozone parliaments must agree to it, and the IMF board must approve disbursement of its share of the tranche.

Based on past experience, in order to accommodate these steps, and make the upcoming repayments, a Staff Level Agreement between Greece and its creditors needs to be in place by 21-22 June, in our view. Furthermore, the run into the end of June also looks to be a key period is questionable without a formal extension”.

Here’s a chart, supplied by CBA, showing Greece’s upcoming debt repayments.

Despite time running out to secure a deal, Dragicevich believes, like many others, that a last minute deal to secure the next tranche of bailout funding will be reached. Even if it isn’t, in a worse case scenario, he believes the a debt restructuring will eventuate, rather than an outright exit from the Eurozone.

As Dragicevich notes, market focus will now turn to the upcoming Eurozone finance ministers meeting held tomorrow.

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