Europe — Greece Inching Closer To Default

Europe's focus will remain the saga of Greek debt negotiations as other forms of market risk will be relatively subdued and concentrated upon limited data risk next week. The issue of Greece is likely to receive considerable attention from the G7 Summit in Germany on Sunday and Monday. 

Greece will make its €310 million payment to the IMF by week's end, but that's just the start of risks that could heat up very quickly thereafter, expects Scotiabank. Of its total €320 billion debt, about three quarters is owed to the other Eurozone governments under the auspices of the EC, as well as the IMF and ECB. Next up are a €348 million payment to the IMF next Friday June 12th, then €581 million on June 16th, and €348 million on June 19th, notes Scotiabank. 

Assuming mountains have been moved by this point, the four-month extension on the bailout agreement will expire by month-end. Should this be extended or bridged, July doesn't get much easier with payments of €465 million due on July 13th and then two payments of €199 million and €104 million due on July 19th. The €3.5 billion ECB bond due on July 20th that, if missed, would cut off ECB funding because of an outright violation of the funding criteria. 

A magical one-shot solution is unlikely at least judging by the moves coming from both sides so far. This link may offer foretelling images. To that effect I think some of the pressure to appease Greece at any cost that comes from this side of the pond risks being misinformed or outright self-serving in the short-run on European policy matters. The real choice here is contagion risk from allowing a Greek default and potential exit from the Eurozone, versus contagion risk from another larger bail-out unaccompanied by huge concessions that would invigorate the rest of the European left and declare the austerity pain across the Eurozone over recent years to have been in vain. 

Macro risk may emanate from three broad types of releases. Industrial output in France, Germany, Italy and the UK will provide important updates on the health of Europe's industrial base. Export figures from Germany and the UK may do likewise. French CPI may result in revisions to the first estimate for Eurozone inflation during May which continues to reflate from the depths of exaggerated deflation worries earlier this year, added Scotiabank.