A bailout extension is now the new theme to focus on in the Greek/creditor negotiations. The intention is to prevent an accidental Grexit and possibly allow for a referendum, but it would also shift the focus toward a more comprehensive negotiations that go beyond the existing bailout.
What this would entail is that we would see a lot of attention on the merits of a third bailout for Greece vs debt relief.
Greece, and likely the IMF, is in favour of a debt relief as this is seen as putting Greek debt on a more sustainable footing while the EU is likely to remain biased toward another bailout. While risk markets might find relief in Grexit risks being pushed further out the negotiations will not be any easier.
The last few months have shown that noise around negotiations and Grexit risks have had little impact on the market even if at times it has been used as an excuse to explain intraday movements on EUR/USD or Bunds.
We don’t expect this to change should there be an extension of the existing Greek bailout.
