Grexit: Apocalypse postponed – again? Gold stutters

So the Greek Parliament has affirmed the acceptance of the latest suite of austerity measures despite something of a revolt inside the ruling party which doesn’t bode well for stability ahead.  It seems that staying in the Eurozone is seen as of primary importance for the Greek people and also keeping Greece in it as hugely important to its EU partners.  The Greek decision should free up funding of up to $86 billion to get it through its latest financial crisis and save the country’s banking system from total collapse, but there are still plenty of hurdles ahead  – in the face of warnings from the IMF that the Greek situation is actually far far worse than the figures which have been used so far would suggest, indicating further bailouts will become necessary.

Thus the global economy has breathed something of a sigh of relief and safe haven investments like gold and silver have suffered accordingly with the dollar rising against the Euro and prices being marked down.

But can Greece deliver, and does the EU trust anything that Prime Minister, Alexis Tsipras promises?  Indeed will the latest apparent total climbdown by the Greeks lead inevitably to a change in government given that it goes entirely against the results of the recent Greek referendum which rejected the EU’s demands pretty categorically?  There has to be a good chance that Tsipras will have to resign given that any agreement on these terms goes entirely against what he has been promising the electorate for the past five months since he and his left wing Syriza party, were elected.  His high stakes poker game seems to have ended in total failure and personal humiliation at the hands of the EU’s political elite dominated by European powerhouse Germany and its President Angela Merkel who have taken a hard line throughout.

The Greek Parliament has thus now agreed to the series of six reform bills demanded by the EU, but not without some serious opposition from members of Tsipras’ own Syriza party (including recently sacked Finance Minister Yanis Varoufakis) and its coalition ally.  This would seem to condemn the Greek people to years more of austerity given the nation’s debts are seemingly almost endless.  But then the alternative could be even worse.

Whether weariness with the whole process will now set in and the Greek people will meekly accept Europe’s dictates, or whether there will now be street protests which could well turn violent – indeed there has already been some limited violent protest ahead of the vote - will remain to be seen.  One suspects reaction against Germany and Germans in particular, which has been seen to be the chief architect of the imposition of ever more austerity, could be unpleasant.  Indeed Germany has come in for strong criticism from many economists over its self-interest position over Greece.  Keeping Greece in the Eurozone is seen as a way for continuing to depress the Euro exchange rate thus benefiting major exporting nations like Germany.

Everyone knows that there’s no way Greece can repay its debts, which means its citizens face continuing austerity indefinitely unless and until some more acceptable form of debt relief is negotiated.  Germany’s hard line prevents this – and some feel that this could lead to Eurozone fragmentation as other smaller nations may see it as effectively putting them under total German financial dominance.  It certainly will provide ammunition for those in the U.K. seeking total EU withdrawal, and if this happens and the U.K. successfully negotiates an exit, then it is felt others may follow.

Impact on gold

But coupled with other factors – a government-manipulated at least temporary end to the Chinese stock markets collapse and yet another statement from the U.S. Fed’s Janet Yellen that interest raising will likely be initiated this year, and the combination saw gold stuttering yet again.  This because the Greek and Chinese situations appear for the moment to have reduced financial uncertainty in the markets while the will she-won’t-she Yellen Fed ever continuing interest rate yoyo effect on the gold price has helped move gold down yet again.  For the gold investor, whatever the short term impact may prove to be, the sooner the Fed makes up its mind and announces a definite interest rate raising programme, the better.  There could be a further downwards knee-jerk reaction in the markets but we wouldn’t necessarily expect that to continue.  Surely the effects have already been taken into account in gold’s lacklustre performance so far this year?

But while the EU has initially voted to accept Tsipras’ latest climbdown and avoid the Greek exit from the Eurozone (Grexit) which had looked very much on the cards, it still remains dependent, among others, on German ratification tomorrow, although this seen as likely given Angela Merkel’s strong support for the decision.  There is already an acceptance in Germany that Greek indebtedness is yet far worse than current official figures suggest and any payback will take years longer than current estimates would indicate, indeed may be indefinite and that it may only be a matter of time before a new bailout is required.  How long can this go on?.

If all is approved and Greece thus comes back from the brink yet again, it still has to deliver, or the whole house of cards that is the Greek economy and banking system, could come crashing down in flames yet again.  And that Greece can deliver, given its history of tax avoidance by the wealthy, its huge pension commitments etc., has to be very much in doubt.  We’d give it a 40:60 chance at best – others rate it 20:80!

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