A crucial period for Grexident risks?
While we are approaching a crucial period with regards to Grexit/Grexident risks, markets remain optimistic that ECB QE will continue to limit contagion.
This is despite dashed hopes of a political agreement between Tsipras and Merkel this week.
Greece has been given very little wiggle room from the the February 20 agreement. Not only has the door slammed shut on any chance of receiving the €1.2bn related to bank recapitalization, the role of the Troika in the approving the reforms has been reinforced, while the ECB has upped the ELA it has also told Greek banks not to increase T-bill holdings.
We have another ‘soft’ deadline to focus on in terms of the list of reforms that is due by Monday whether this is met must be in question given political resistance to reforms and the Troika.
In the meantime time is running out for the sovereign. The last two 6-month T-bills auctions were dire and barely covered with offers only €1m higher than what was sold, suggesting demand was largely a domestic affair.
With foreign participation on the decline, domestic banks will be hard pressed to pick up greater amounts of Greece’s €1.4bn 6-month T-bills when they mature on April 14.
But ahead of this maturity is a payment of €460mn to be made to the IMF on April 9. In addition to the auctions/payments there is also the continuing pressure from the banking system that has seen a €2m outflow of deposits (Jan-Feb) exceed outflows seen at the height of Grexit concerns in May-Jun 2012.
Deposit outflows have resumed recently following the mention of capital controls from Dijsselbloem. It all points to alarming liquidity risks for both banking system and the sovereign.