Greece: Groundhog Day

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Includes: GREK
by: George Christopoulos

Summary

An agreement for Greece's next loan tranche is impending, regardless of the usual Germany-IMF bickering.

Significant debt relief measures are not expected, and therefore market optimism will be limited after the agreement.

In the days leading up to the June 15 Eurogroup a spike can be expected, followed by months of limbo.

It's pretty much Groundhog Day for anyone still bothering to observe the developments in regards to Greece's negotiations with its creditors.

First you have the Greek government saying that there is no chance whatsoever that any more austerity measures will be implemented (for instance, Prime-Minister Alexis Tsipras was claiming in an interview in January that "there will not be one more euro of new measures"). Then you have Germany saying that Greece's debt is sustainable as long as it keeps up the good work and there is no need for debt relief. And finally you have the IMF saying that the debt is not sustainable and debt relief measures are needed.

What happens in the end? New austerity measures, the debt is deemed sustainable with some adjustments in growth projections, some promises for future small-scale debt relief are made, Greece secures the next loan tranche and the can is successfully kicked down the road.

Meanwhile, the economy remains in limbo, businesses are straddled with constantly increasing tax burdens and the Greeks keep on burning through their savings in order to survive.

Currently we are at the point where the Greek government has passed a recent package of austerity measures in a business-as-usual fashion. Meaning limited demonstrations and no MP-defections, thus confirming what I was writing back in August 2015:

All scenarios point towards the formation of a government whose de facto goal will be the implementation of the reforms prescribed by the recent bail-out agreement. This does not change the fact that Greece faces a path riddled with challenges. However, for the first time in years, these challenges will not include, at least in the near future, significant political instability

Back then, after the notorious Tsipras-Varoufakis confrontational negotiations and the craziness surrounding the Greek issue at the time, it seemed pretty risky that one would predict a 2-year period of political stability in Greece. Yet here we are.

Given that Greece has once more done its duty in regards to following the austerity dogma, we are now in the phase of the clash between Germany and the IMF along the aforementioned lines.

It is the exact same pattern before every loan tranche, as much as anyone would have you believe that this time it's different.

When it comes to the Greek stock market, as I pointed out last August, the pattern with this SYRIZA government is different than that of previous years.

After the so-called "package of measures" - like the bill previously mentioned - passes, this is usually followed by a period of optimism in the stock market. Yet last time, this was not the case.

So this time we have seen once again the market price-in an agreement between Greece and the creditors beforehand. However, after the recent Eurogroup -against most expectations- failed to deliver, the decision has been postponed until the next one, on June 15. This translated in a correction in the last two days (and the expected bond sell-off), led -as is usually the case in Greece- by the bank stocks.

During the next days we can expect a bit of posturing from all sides, but the chances than an agreement will not be reached -especially given that German elections are coming- is minimal. The correction may continue for a bit, but expect a spike when it will become absolutely clear to everyone than an agreement is impending. Hence, a good opportunity for some short-term plays.

What can we expect after the agreement? If we were looking at the announcement of significant debt relief measures, obviously things would be looking up in the coming months. Yet it has become clear that we can expect no such thing, and the best we can look forward to is something small-scale. However, such limited measures were announced after the last loan tranche was secured, and as the chart shows, they had an equally limited effect on the market.

Therefore to sum up, everything points towards some short-term gains in coming days, and the usual limbo in coming months.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.