Last week, the IMF withheld financial support for a third aid package for Greece until debt relief requirements are met. What does it mean for the Greek debt crisis and the gold market?
The Greek debt crisis returned faster than we thought. Last week, the IMF officially confirmed that it would not participate in a new bailout for Greece unless the country gets debt relief from its European creditors. Additionally, the IMF wants to see a comprehensive pro-growth economic reform program and guarantees that Greece can carry them out, as well as guarantees for the country’s financing needs.
It seems that the IMF finally came to its senses and understood that without debt relief and guarantees that the Greek will conduct serious pro-growth reforms, the latest bailout agreement will just bring some time for Greece, but eventually fail – in the same way the previous two bailouts failed. Well, third time’s the charm.
Although the IMF’s decision is right, it may cause some perturbations during negotiations. Without the IMF’s involvement, the credibility of the bailout will suffer and the Eurozone will have to provide all the funds itself. Given this revolt, it is less likely that a deal will be reached before August 20, when Greece is due to make a €3.4bn repayment to the European Central Bank.
This is not the end of Greece’s troubles. On Monday, the stock exchange was reopened (although with some restrictions to prevent money outflows from the banking system), after more than a month of suspended trading. Unsurprisingly, yesterday the stock exchange was suffering a second day of losses after reopening, with banking shares being hammered most. This is exactly what one should expect after weeks of suspended trading in a country in a recession and with heavily undercapitalized banks. In addition, there is some uncertainty about early elections due to dissent within Syriza.
To sum up, the Greek debt crisis is far from being solved and it will be returning to the spotlight from time to time. It could be rather positive for the gold market, however, without the rise of the risk of spillovers, gold will probably not react strongly. It seems that the U.S. labor market and the expectations of the Fed’s future decisions are more important factors in the gold market right now.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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