The only time politicians aren't talking is when they're making deals
The euro climbed to a session high and Greek stocks crept about 2% higher after hours.
The number-one reason a Greek deal may be closer than it seems is that it's suddenly silent in all the usual places. Greece's most recent proposal was rejected but leaders didn't go on a tirade or play the blame game.
It's a similar story among Troika leaders. They didn't like the Greek deal but the rejection wasn't the public flogging we've seen in the past.
US-listed Greek ETF
Greece needs to make concessions
So far Tsipras has played a crazy game of chicken; refusing to budge on its 'red lines'. Unless they show some willingness to compromise, there is zero chance of a deal.
Two things make me think leaders are planning to go to Greece on Monday and make a deal:
1)
The most-negative murmurs today came from Merkel but they weren't that bad. For starters, yesterday she said a deal was "still possible" and that if there is a will, there's a way. I don't think a deal, even a bad one would hurt her political standing too much at home. Today she said the summit in Greece on Monday may only be an 'advisory summit' if there is no foundation for a deal. At first that sounds like a negative sign but I see it more as a warning to Tsipras that he needs to make more concessions but that she believes they're coming.
2)
The ECB is still funding Greek banks. Granted, it wasn't the 3 million euros they asked for. They're trying to demonstrate the looming calamity without cutting off Greece. That says to me that they want to make a deal. Juncker has also been much more positive lately. He's a bit puzzled by Tsipras' unwillingness to give ground but he's trying to make it happen.
No weekend deal
To be sure, markets are going to reopen on Sunday without a deal. That's almost a sure thing. The summit isn't until Monday and nothing gets done until late in the day so Monday night is the earliest but if it's still relatively quiet through the weekend, then buying the euro or Greek stocks at the market open is a trade worth making.
If you'd like more ideas on what's going to happen, we had many responses to our poll on what will happen next.
On of the best responses came from Luigi De Felice:
Let me try to be logical. I hope economics purists and
experts will not blame an honest attempt...
I'd go with the deal option
The reasons are as follows:
1. Under the surface, not even to deep under, Greece cannot validly claim to be suffocated with debt. Outstanding debt has largely favourable conditions as opposed to market conditions. Maturities, and rates as advantageous as they can get, whether Greece likes it or not. It would be hard to find any creditor offering better terms and conditions. With that in mind, Greece's "big no" would prove a mistake.
2. Under the same surface, debt restructuring is conceptually easy, whether the creditors like it or not. Restructuring could be obtained by elongating maturities as much as needed to lower the net present value of the debt as appropriate in relation to the country's expected GDP. Other schemes are more complex but aim at similar results. As a consequence of restructuring, required reforms could be calibrated and rolled out putting people first - as required by Tsipras - while holding the Government responsible for implementing and enforcing the reforms - as required by the other EU member countries and the relevant creditor institutions. With that in mind, neither party can claim that bridging the gap is impossible. The only real danger they both fear is most likely of an electoral kind.
3. The outcome of a "no deal" event is far more costly than the outcome of a "deal" event. For Greece, popping out of the Euro would likely mean re-issuing the Drachma. Provided Greece can actually print notes (not a given), in the current backdrop the exchange rate would likely be far lower that current the notional value of an EUR in Drachma (around 300-400 if memory does not fail me) and may stretch to three - four times as low. Who knows how much in the end. For a net importing, and troubled country, slashing the currency's purchasing power would be detrimental, to say the least. I won't go deeper into it, but it is easy to think of Greece going back 60 years and potentially leaving the EU. For EU, the impact of a Greek accident is not easily determined, but it has a name: political credibility. Despite the successful attempts at isolating and ring fencing contagion risk, loss of credibility is
only addressed by intelligent politics.
So far my reasoning.
Therefore, I would assign a 70% probability to the deal event. I am aware that a 30% probability of not getting a deal is the same as a default (Argentina defaulted when the default probability implied in the EMBI+ was around 20-22%). Therefore, I wouldn't call myself an optimist by nature. The 30% negative probability incorporates, inertia causing instability in Greece, and an unexpected exit.
The market looks only slightly diverging, in my eyes.