This Could Have Been Predicted: No Greece Deal

     In fact I pretty much predicted it yesterday:

      The equity futures are up again today and you wonder at this point the market is getting ahead of itself. The driver is apparently the belief that Greece is going to come to agreement with the EU. 

      "The latest is that the Greeks and EU are going to have an agreement by tomorrow night which will be announced Thursday. If history is any guide though, this hope will be disappointed. It's' not like we haven't seen this movie dozens of times. There's always a pending deal until there's not."
      "Here's the problem though. If the Eu can take or leave Greece why are the markets so ecstatic because of their assumption a deal is going to happen Thursday? What will happen to the market if this assumption proves to be wrong?"


     http://diaryofarepublicanhater.blogspot.com/2015/06/on-greece-investors-counting-their.html

     The answer wasn't hard to imagine: the market will tank if this optimism is disappointed and that is what we see in the equity futures this morning:

     "International creditors on Wednesday rejected the Greek government's plan to end its financial crisis, but they have submitted counterproposals."

      "News of the rejection, announced by Greek Prime Minister Alexis Tsipras, dashed hopes of an imminent deal between the embattled Mediterranean country and its creditors. Greece needs additional financial aid to prevent it from defaulting on its 1.6 billion euro debt at the end of the month, but its lenders have refused to release funds without the implementation of more reforms."

     "The International Monetary Fund is believed to be the most skeptical of the troika of bodies overseeing Greece's bailout. Its creditors have now put forward a new set of counterproposals, sources close to the talks told Reuters."

Greece divided over reforms and future

      "European markets turned lower on news of the rejection, with Germany's Dax falling 1.2 percent and the Athens stock exchange down 3.3 percent."

     http://www.cnbc.com/id/102783426

    It wasn't that hard to imagine-this is what happens every time. There is optimism of a deal. Then someone in the Troika decides there isn't enough pain and then it's back to the drawing borad. It's hard to imagine anyone being surprised but apparently the markets really are. Which seems to agree with my assertion yesterday: the markets were counting the chickens before they are hatched. 

   Tsipras doesn't sound very happy with the treatment of Greece and I can't blame him.

   "Certain institutions insist in not accepting equivalent measures suggested by the Greek government," Tsipras told his colleagues before departing to Brussels, according to a statement. "The non acceptance of equivalent measures has never happened before. Neither in Ireland nor in Portugal. Nowhere!"

    He added: "This strange stance could be hiding one of two things. They either don't want a deal or they are serving certain interests in Greece."

   The prime minister also took to Twitter to update on the latest developments.

    Dennis Gartman on CNBC is saying 2 notable things:

    1. Greece would be much better off 'taking its own medicine' and getting off the Euro rather than the Troikka's medicine of deeper and deeper austerity and 'structural reforms.'

   2. However, Gartman thinks that Greece won't ultimately do this because Germany won't let it leave. 

   This totally flips the conventional script where it's Greece as Germany's parasite-which is what the German people have deluded themselves into believing. It turns out it's the opposite. Germany doesn't want Greece to leave as the euro would rise considerably hurting German exporters. 

  It's number 2 that I find hard to understand. There was a paper out by the Bank of Greece last week that claimed that a Grexit would be enormously painful. Paul Krugman himself wasn't impressed saying 'Show me your model.'

  Tsipras was elected to end austerity and end the cycle of being bullied by Germany, the EU and the Troika. It will not be good for anyone if there is yet another election this year so presumably he is thinking about this too. 

  "Dimitris Koutsoumbas, general secretary for the Communist Party of Greece, said the Greek people shouldn't accept an "antidemocratic agreement" with the EU."

  "We need a complete plan—an exit from the euro zone and the currency won't solve everything," he told CNBC on Wednesday.

   "The attitude of the European Union and Germany is unacceptable. Past Greek governments are also responsible."

    "And given this discontent, the chances of a second election this year in Greece are rising. Tsipras's Syriza-led coalition only has a 12-seat majority, and may have difficulty selling the new deal to its own MPs."

     "There will "probably" be another election this year in Greece, Panagiotis Karkatsoulis of the centrist To Potami party, told CNBC. However, Makis Voridis, an MP from New Democracy, the center-right party defeated by Syriza in the last elections, said another election would put the country in "big trouble"

    Still though the markets are down today it's only a mild drop from what it was in the past suggesting that maybe the ECB's QE has reduced the risk of the fallout from a Grexit. 

    "Michala Marcussen, global head of economics at Societe Generale Corporate and Investment Banking, reflected the opinion of many in the markets on Wednesday morning when she told CNBC a Greek deal will "most likely" get through a Greek and German vote."

    "Market reaction to Greece has been quite calm compared to what has happened in the last few years, aided by the European Central Bank's expansionist monetary policies, Marcussen pointed out."

   "As the central bank will likely have to lead the policy response in the event of Greece being forced to leave the euro zone, this level of trust from market participants is important—but if it slips, more trouble likely lies ahead."

    Maybe an exit is good for both the EU and Greece. Still I think that even if the ECB has more credibility now it could still be very costly for the EU politically speaking. 

   If Greece can just walk away-making what has seemed unthinkable thinkable-then why can't other periphery countries follow them?