By Sprott Money
Markets were upbeat with better than expected European and US earnings, despite a dark cloud remaining over the general global economy.
This dark cloud, once again hammered the Euro lower, as markets fear the worst is fast approaching. This dark cloud I speak of is of course, none other than the potential Greek exit that has plagued the markets for years, yet is a very real possibility in the immediate future.
Numerous rounds of negotiations between the IMF, ECB and Greece have now taken place. Yet hopes remain dismal, as no middle ground appears to be in the foreseeable future. Unfortunately for Greece and its people, time is running out.
Fear of a true Greek bankruptcy is not unwarranted, as markets know the contagion that will spread through the European and global banking system as a result, a contagion that could spark another 2008 global crisis.
With neither side willing to budge, the Greece government ordered state entities to park cash in the Central bank, this in a desperate attempt to keep the facade going just a little longer if additional loan terms cannot be reached.
These “parked” funds will be used as a short term reprieve from utter default, as they will grant the Greece government the ability to pay short term IMF loan repayments and government workers salaries.
This of course is only a short term solution. The Greek government at this point, as pointed out in the past, is just playing a shell game. Funds are being shuffled simply to keep their sinking ship afloat. It is only a matter of time before disaster strikes.
Although the Euro has taken a hit over this news, the full ramifications of a “Grexit” are not being priced into the currency, or European markets in general. The world, as it typically does, appears willing to wait until the last second before it faces reality and realizes the true risk it faces.
One such country that is not simply standing by is Russia, which continues to develop its relationship with the Greece government. They know if Greece is somehow saved and able to remain afloat, then they will have a valuable ally in the EU. An ally that can protect them from economic sanctions and further hardships that they have suffered from the West over the past few years.
The latest move by Russia, is an attempt to bring the two countries closer via the proposed “gas link accord”, which the Greece energy minister says is nearing completion.
This pipeline will have Russia guarantee 47 BCM/YR of gas via Greece, with the cost being shouldered by a Russian-European group, thus giving Greece a gain, with little to no cost of its own. Something it desperately needs in this time of hardship.
As previously indicated, this will have huge advantages to both countries, but most importantly in Greece, which was in dire need of some positive news. If this project can get underway, it will allow access to the markets once again, and possibly grant Greece the reprieve it needs.
Unfortunately, even this project, if made official, will not be enough to avoid the inevitable collapse that Greece faces. Structurally and fundamentally the country is bankrupt and a default is inevitable.
Will its officials be able to extend and pretend one last time? Or does the end of the month signify the end of Greece being in the European Union, if so what does the future bring for them?
Hard times certainly lie ahead, but the sooner this correction occurs, then the sooner they can begin their path to recovery and hopefully a brighter future.
Source: Sprott Money News