Yesterday, the IMF admitted that its team negotiating with Greece had returned to Washington after a failure to make progress in talks. What does it mean for the debt crisis and the gold market?
The IMF threw in the towel and it called its negotiating team home from talks with Greece in Brussels on Thursday. The message is clear. There was no progress in talks, despite constant assurances about mutual understanding and narrowing the differences between Greece and its creditors.
The situation is becoming really serious, as the IMF never left the table before. It may be interpreted as a “take it or leave it” proposition. Indeed, it seems that creditors have had enough as they warned Greece that it had less than 24 hours to propose a serious counter-proposal, including pension system and VAT reform.
However, this hard negotiating strategy may not work, since Greece has nothing to lose. Undoubtedly, it needs money, but it can always return to its old currency, the drachma. It would not be painless, for sure, but it seems that the Troika has more to lose. Moreover, it may be the case that Greek Prime Minister Alexis Tsipras, bounded by his voters and socialist coalition, just wants someone to blame for the failed negotiations. In this scenario, the IMF’s exit would be the ideal gift for Tsipras.
The Greek drama got complicated also by the decision of the Greek top administrative court on Wednesday, which declared pension cuts adopted in 2012 unconstitutional. The court’s decision means that the government has to restore the pensions to the level they were at before the November 2012 law came into effect and cutting them by 5 to 10 percent. The only problem is that Greece is bankrupt. And this is not exactly the pension system reform expected by the creditors.
To sum up, the IMF’s walking out of talks with Greece signals, speaking euphemistically, the growing impatience in the negotiations. It is good news for the gold market, because the increased risk of default and Grexit should support the gold prices.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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