Euro Summit: One more step towards Grexit

The Eurogroup meeting and the Euro summit on 7 July were inconclusive. Presidents Tusk and Juncker explained after the summit that there was no agreement and that the Greek position has been weakened after the referendum. Following the Greek referendum, Heads of State and Governments have asked Greek PM Tsipras to come up with some clear and detailed proposals for a third programme by Thursday. 

The Eurogroup will then review these proposals and the EU Council will meet in its full composition (EU28) next Sunday to decide if conditions are met to start negotiations on this third bailout. President Hollande mentioned that, in the meantime, the ECB is expected to stay sufficiently accommodative to support the Greek banking system until then. During the press conference, Juncker said explicitly that a black scenario was not excluded, and that "Grexit" was a possibility. A stance shared by at least Mr Hollande and Mrs Merkel.

A third programme (for two years) would include a short-term bridge program to face the summer repayment, to which would be attached specific conditionalities, rather focused on short-term public finances, while conditionalites for the longer run would be more biased towards structural reforms. Angela Merkel specified that debt relief discussion will not come before October.

"We retain our view that EMU exit is the most likely scenario. Agreeing on a programme on the basis of Greek reforms in exchange for European-OSI with the current Greek government is at this point extremely difficult. First, the strong rejection by the Greeks at the referendum sends the message that a deal with the Institutions is not wanted on the terms presented over one week ago. Second, an improved deal for the Greeks would be a very difficult sell at home for EA countries, especially for Germany to get it through the Bundestag or in Spain ahead of the general election", says Barclays.