A lot of interesting things were happening in Greece lastly. What do these last developments mean for the Greek debt-crisis and the gold market?
It seems that the Greek crisis has settled down. First, a week ago, Greek parliament approved the first package of reform (including changes in VAT and pension system, and creating special privatization fund). In exchange, the Hellas got the €7.16 billion bridge loan. Thanks to this money, Greece repaid its infamous arrears to the IMF worth €1.6 billion (it already made a second payment due last week worth €0.45 billion). The country cleared also its obligations to the ECB worth €4.2 billion. So, essentially creditors loaned Greece money, so it can repay its creditors. It may sounds a bit circular, but this is how modern and highly-sophisticated finance looks like. That way, creditors can still pretend that there is no problem of excessive debt burden and earn interests on loans.
But, let’s get back to the recent developments. On Monday, the Greek banks were reopened after 21 days of being closed. It seems that Greeks used to economic crisis, since there were no reports of panicky storming banks. Perhaps the explanation lies in the fact that strict limits on cash withdrawals remained. And today, Greek parliament approved the second batch of reforms (on judiciary and banking systems) demanded by the creditors. These reforms were the final condition to start negotiations on a third bailout worth around €85 billion. We cannot also omit the fact that the ECB increased the emergency liquidity assistance for Greek banks by €900 million for one week. Accidentally, the ECB did it only after the capitulation of Greece.
On the surface, it seems that the Greek debt-crisis settled down. However, it is possible that the new program (if agreed) will fail in a few quarters and the Grexit question will flare up again. This is because it raises already excessive debts to even more unsustainable levels, provide not enough funds to recapitalize banks and asks for structural reforms, which although officially approved may be not fully implemented due to reluctance of Greek society and administration.
Take-home message is that for now the Greek crisis is settling down, however the Grexit question could return after some time. This is because everything indicates that the third bailout will repeat all the mistakes made at previous agreements. The reduced Grexit fears means the lack of support for the gold prices, however the stronger euro may weaken U.S. dollar and strengthen the gold. Anyway, the investors’ attention shifted completely from Greece to the Federal Reserve and its expected interest rate hike, which is negative for the gold market.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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