DUBLIN, February 10, 2015 /PRNewswire/ --
Late on Wednesday, the 4th February, the ECB announced that it was no longer going to accept Greek bonds as collateral in order provide funding to Greece. They explained that their decision was based upon the fact that they could no longer assume that the current Greek debt review would conclude successfully.
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What this essentially means is that the Greek banks are no longer able to pledge Greek bonds as security in order to fund themselves, so liquidity is about to dry up very quickly indeed. With the removal of this pillar of support for the Greek banking system as a whole by the ECB, it gives some credibility to those who have spoken of the possibility of a run on the banks.
We, at the Academy of Financial Trading, have been contacted by a significant number of clients who are asking if this development might indeed be tradable. We can immediately see that the price action displayed within both the Greek and the German bond markets does indeed provide opportunities for those who are keen to take advantage of these movements. However, in this instance, it might be more interesting to try to analyse the fundamental reasoning behind the current events displayed within these markets.
This action by the ECB was directly caused by the success of the "Coalition of the Radical Left" (SYRIZA) political party in the recent Greek general election, and of the subsequent installation of its leader, Alexis Tsipras, as the Prime Minister. Mr Tsipras rode to victory on an "anti-austerity" platform… and a pledge to the electorate to fight against the "humanitarian crisis" in Greece.
Once in power, SYRIZA wasted no time in living up to its pre-election promise. They declared that they would not honour the financial commitments which were made and agreed by the previous government. Furthermore, they said that they would negotiate with their peers within Europe, but not with Angela Merkel.
Some commentators have suggested that this tactic by the ECB may simply be part of a negotiating strategy - albeit an extreme one. They may simply be flexing their financial muscles in order to try and prove who is ultimately in control of Greece, and that it is not Mr Tsipras. This strategy may turn out to be an exercise in futility.
The new Greek Finance Minister, Yanis Varoufakis, is not allowing himself nor his country to be intimidated by those who currently control the purse strings. Mr Varoufakis declared that the Euro is very fragile, and compared it to a house of cards - "If you take out the Greek card the others will collapse". He also rhetorically asked which country might be next, whether it might be Portugal or Italy? Indeed, after Greece, Italy's public debt is the next largest among the Eurozone member states. This implication was immediately dismissed by the Italian Economy Minister, but the simple publication of this thought might be enough to spook others.
For now, we must play a waiting game. The lawmakers in Germany continue to insist that Greece must fulfil their obligations already agreed with the triumvirate of the EU, the ECB and the IMF (commonly referred to as "the Troika"), while Varoufakis is saying that the Troika structure must come to an end. In this high-stakes game of political jousting, no quarter is being shown from either side.
It is somewhat ironic given the current situation in Ukraine, the word "Troika" actually comes from Russia. An aside to this Greek main event sees Russia meet up with both Germany and France to see if a peace-deal can be brokered… while at the same time Mr Tsipras and Mr Putin have agreed to boost bi-lateral cooperation. Mr Putin has also invited the Greek Prime Minister to Moscow as a gesture of goodwill. At best, this is simply a case of mischief-making by these two leaders. At worst, it will cause a division within Europe which might be impossible to mend.
The latest action and reaction from the coalition of Western Allies regarding Russia and Ukraine does indeed appear to show that a fracture is forming. With Francois Hollande and Angela Merkel taking it on themselves to travel together to both Kiev and Moscow to see if any progress can be made regarding the conflict, it has left the US somewhat out in the cold. Indeed, France in particular does seem to be pivoting towards Russia and separately, Cyprus has offered Russia a military base on the island.
Meanwhile, despite John Kerry being at pains to point out that there is no split between the USA and Germany, the German Foreign Minister has declared that Washington's strategy is "not just risky, but counterproductive". The German Chancellor Angela Merkel has since taken the step to meet with President Obama in the White House, and it was interesting to see that they are at least trying to display a united front. Both have agreed that a military solution is not on the table for now. Those words "for now" are where both sides would appear to differ. Merkel does not believe that militaristic intervention is the answer in any scenario, while Obama seems content to continue to publically ponder whether or not he agrees.
Where exactly this leaves Greece for the moment is unclear; however, they are cleverly positioning themselves to try to ensure that they are no longer going to remain as reliant upon Europe. The main focus right now is certainly upon the 25th February. This is the day where the Emergency Liquidity Assistance (ELA) could indeed be withdrawn, which would completely cut off all liquidity to Greece. If this does indeed occur, there will only be two options available: either SYRIZA completely gives into the demands of Germany and the Troika, or Greece leaves the Eurozone.
The outcome of any further discussions over the coming two weeks will most likely determine the future of Europe as we currently know it. For those who cannot understand why the leaders of all involved countries refuse to yield, perhaps the answer is best summed up in a quote from the 19th century - "Permit me to issue and control the money of a nation, and I care not who makes its laws!"
SOURCE Academy Of Financial Trading
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