Article by ForexTime

We have seen this play before.  Greece embarks upon authority only to fail to be able to pay its debt and a restructuring occurs as the market pushes to a collapse.  What should make anyone believe this time is different?

Tsirpas and his left coalition seem to have managed to win the Greek snap election. What was more of a surprise was that he teamed up with the right Greek Independence party.  What these two groups have in common is their joint resistance to the bailout program and their disdain for austerity measures.

It is comforting to know that Eurozone Finance Ministers are likely willing to talk about a further lengthening of the debt schedule as well as a further cut in interest rates. Greece is already paying an average of just around 2.5% on its debt, considerably below current market rates and very low compared to the historic average. With debt at around 175% of GDP interest payments are still running at just around 4.3% of GDP, although admittedly that is considerable above the Eurozone average of around 2.8%, which will be one reason Eurozone officials are willing to talk about a further cut in interest rates.

The rise of populist powers in Greece to government level has been held up as a warning to Germany that its policies are no longer acceptable, but never mind the ECB, it is still Germany that is implicitly the lender of last resort in the Eurozone. This became quite clear in the discussion on the amount of burden sharing involved in the ECB’s QE program. German is performing well as the DAX continues to outperform.  The ERU/USD is forming a bear flag pattern near support, so traders should be leery of another leg down.

Article by ForexTime

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