The Greek parliament voted on Sunday to hold a referendum on the creditors’ proposals. What does it imply for the future of Greece and the gold market?
It was a turbulent weekend for Hellas and the whole Eurozone. On Friday night, Greek Prime Alexis Tsipras surprisingly called a referendum for July 5 on the bailout deal proposed by the international creditors that he described as unbearable and humiliating. Two days later, the Greek parliament voted 178-120 in favor of the referendum, despite some doubts that referendum may be unconstitutional (since Greece’s constitution does not allow popular votes on fiscal matters).
Although Tsipras urged Greeks to vote ‘no’, he did not believe that he had the political legitimacy to sign a new deal. For Tsipras, it seems to be a smart move, as it puts the responsibility on the Greek population and ends hopes for early elections. It could be also a final gambit in the negotiation game to put more pressure on creditors. But the first polls (conducted before the call for referendum) in Greece find that most Greeks favor the new deal. From 47 to 57 percent of the participants said that they would vote ‘yes’, depending on the poll, while only 29-33 percent would vote ‘no’.
However, the funny thing is that the referendum will be practically meaningless, since it will be on a no longer existing proposal for a program that will have expired (it is due to expire on Tuesday). This is because the Eurogroup withdrew the offer and rejected the Greek government’s request for a short bailout extension in the run-up to the vote.
The consequences of these events are definitely less funny. Without the bailout funds, Greece will be probably forced to default, since it has to pay €1.6 billion to IMF on Tuesday. As uncertainty is rising and deposit withdrawals are accelerating (and the ECB finally froze the level of funding support), Hellas decided to introduce capital controls and keep its banks (and stock exchange) closed today. The coming financial turmoil should support the gold prices (especially gold priced in the euro).
To sum up, the best option for Greece would be to default and to conduct radical, structural and free-market reforms, since hiking taxes during recession, as the new bailout plan required, would be detrimental. The government decided to take a referendum instead. The results are uncertain and… practically meaningless, since the Eurozone finance ministers have actually withdrawn the voted proposal. They also rejected a request for another bailout extension, which will likely make Greece insolvent. The Greek debt crisis is entering the final phase, and the resulting financial turmoil should spur the safe-haven demand for gold.
If you're interested in the implications of the above on the trading and investment capital on one's gold portfolio, we invite you to read today's Gold & Silver Trading Alert.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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