On Friday, the Eurozone finance ministers agreed to launch a third bailout program for Greece. What does it mean for the Greek debt crisis and the gold market?

Let’s rest for a while from China and analyze briefly the recent developments in the Greek debt crisis. The Eurozone approved new bailout loans worth €86 billion over the next three year, in return for tax rises, spending cuts and some structural reforms. The first tranche of loans will be for €26 billion. The first installment of which will be €13 billion, just in time for Greece to repay about €3.2 billion to the European Central Bank by August 20. The next €3 billion the country will receive in September and October, while €10 billion will be used to recapitalize Greek banks. The Greek parliament backed the deal, however, it needs to be approved also by other Eurozone members’ parliaments, including the German Bundestag (Austria, Estonia and Spain have already backed the deal).

The next important decisions will be taken in October, after the first of the Troika’s quarterly reviews of Greek progress in implementing reforms. Depending on the results, the creditors will decide on the debt relief, which is a condition for the IMF’s participation in the program.

What does the new deal imply for the Greek debt crisis and the gold market? Well, the deal ends months of turbulent negotiations and certainly eases the worries about a Grexit. Of course, everything may happen, given the high Greece’s indebtedness and its historical reluctance to implement unpopular reforms. The country is in a recession, which may lead to a split in Syriza. Maybe you won’t believe us, but there are in Syriza people even more leftist than Tsipras. And the creditors’ growth projections are possibly too optimistic (as usual). All these combined factors could lead to the renewal of the crisis after some time. However, it is a matter of months, if not years. So far, Greece got the needed funds to survive, while its recession will not hurt significantly the European economy.

Summing up, the Greek debt crisis is coming to the end, or at least is going into hibernation mode. This is negative news for the gold market, however, there may be some downward pressure for the U.S. dollar from the euro.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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