The situation in Greece involves lots of moving parts, and it’s important to note what will be the trigger if this crisis is to erupt into a full blown Lehman moment.
Right now, the trigger appears to be the Greek no confidence vote on Prime Minister Papandreou’s new government. A no could trigger an end to EU support for Greece, according to Societe Generale’s
He describes it as a political “Catch 22”:
Despite some reassurances from EU Commissioner Olli Rehn on Thursday evening, the formal conditions for Greece to obtain funding from the EU are under severe risk of failing, because EU funding is conditional on the Greek Parliament passing the Medium Term Fiscal Plan. A failed vote of confidence could critically derail this process. In turn, the EU/IMF programme’s fifth quarterly disbursement of €12bn is conditional on the EU providing funding for Greece over the next year. Only then will the IMF contribute its €3.3bn share of the total quarterly disbursement of €12bn. This double conditionality in principle creates a deadlock, and the Greek Parliamentary vote of confidence becomes a de facto necessary condition for cash heading to Greece in early July. Right now, the odds don’t look so good.
It works like this: A Greek confidence vote signals to the EU that Greece can get a deal done on its austerity budget. The EU’s confidence signals to the IMF that the EU will be willing to spend on Greece in the future. This confirms the IMF will release the next tranche of Greece’s first bailout loan (early July money).
And if this gets done on Sunday-Monday, we’re then going to see a bit of a break.
From Vladimir Pillonca:
Looking ahead, what seems increasingly likely is that next week’s Eurogroup and Ecofin meetings (June 20-21) are unlikely to result in a policy leap, and that the elusive “crunch time” will shifts to July 11, or quite possibly even later.
So after this vote, it’s fair to take a breath. For now though, that’s the main story. It remains possible that, if that vote doesn’t pass, we could still see a deal, but it increases the risk we won’t.
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