Latest development on the Greek drama has entered a new stage where the battle continues to draw on and agreements seems further out of reach. Euro is ranging since yesterday after Eurogroup talks ended in a standoff.

Stalemate on Eurogroup meeting about Greek Debt has made the market wary on the many scenarios that may happen. Last week, many believed that agreement will soon be reached. But latest development on the Greek drama has entered a new stage where the battle continues to draw on and agreements seems further out of reach. Euro is ranging since yesterday after Eurogroup talks ended in a standoff.

Euro

The Shootout

European part in the Greek international bailout will end by the end of this month. Apart from that, Societe Generale noted that Greek will have to face 5.4 billion euros bond redemptions and interest payments to the IMF, as well as 1 billion euros bond coupon payments in June. The situation may drag the country into default and become the first country to get out of the single currency. An impromtu discussion that took place last week ended without meaningful agreement, and so it was continued in Monday.

However, instead of reaching a win-win conclusion, in the negotiation Greece was pressured to submit bailout extension proposal with similar terms as the previous one. Greece finance minister Yanis Farouvakis strongly refuse to do that because the country was only going to ask for temporary bridge loan while negotiation resumed. The main concern of the Greece was that if they submit to the plan, then their demands to discard the previous terms, including austerity program and the Troika, will be ignored. Nevertheless, Eurogroup officials stands by its original intent by stating that the only option for Greece is to submit bailout extension proposal.

Prolonged meeting in Monday was closed with an ultimatum from European officials for the Greeks: submit proposal by Friday, or Greece risks default. Farouvakis responded strongly against the ultimatum in the subsequent press briefing. He said, In the history of the European Union, nothing good has ever come out of ultimatums. I have no doubt that in the next few days any notion of an ultimatum is going to be withdrawn.

Varoufakis asserted that Greece new government was chosen to reject the old bailout program that was considered as harmful for the country, hence it is not possible for them to give in to Eurogroup pressures. If a deal is failed to be gained, New York Times  mentioned that Greece indicated they may turn to Russia or China.

 

Who Will Blink First?

In the circumstances, analysts are starting to be pessimistic whether a deal can be obtained before the deadline arrive in the end of this month.

At a glance, Greece seemed to be cornered and may have to comply to Euro demands, but not all think of it that way. CNBC quoted Wealth Destination CEO, Michael Yoshikami, who predicted Euro will have to back up and give in to more concession to the Greeks in form of new agreement and bailout terms renegotiation. The reason is, Greece is too big to fail. Athough Greece is proportionally smaller than the whole Eurozone, but Greece fall can be contagious. If Greece's banks collapse, what's going to happen to Italy's banks, what's going to happen to Spain's banks, what's going to happen to Portugal's banks. Further, Yoshikami does not think that Euro will risk that.

Utang

Meanwhile, among other analysts that saw no deal in the end, foresee Grexit in the horizon. Some of them are Jennifer McKewon from Capital Economist, and Societe Generale. According to McKewon, no deal in Monday increases the risk of Grexit. While Societe Generale wrote, Without a new program, the Greek government will eventually default while the ECB would most likely cut the Greek banks off from Eurosystem liquidity, triggering their collapse, increased private sector defaults and ultimately Grexit. We are not there yet, but time is running shorter by the minute.

According to Kathy Lien from BK Asset Management, there are two ways for traders to trade with Greek debt talks background. First, in less likely scenario of failed negotiation and Greece will leave the Euro, Lien considered EUR/USD may pierce through 1.10 and move to parity. But in the second, more likely scenario of a deal gained, Lien suggested to buy Euro on the low if the pair come to 1.1250-1.1350 or when it arrives at 1.1450 which should not be stepped on unless there is development on the talk. Beside of that, the result of the discussion will also affect other assets, such as US Dollar and safe havens. If a deal is not reached, US Dollar has potential to strengthen; while if it is then it may trigger profit taking on the Greenback.