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Grexit: Back on the table? - BBH

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 3, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) - Research Team at BBH, suggests that defying the expectations a few months ago, Greece remained in the Economic and Monetary Union but the entire exercise exhausted whatever trust there may have been and has also further soured Greece's attitude toward the EU.

    Key Quotes

    The refugee challenge is such an issue. The Financial Times reported that some EU officials are threatening to suspend Greece from the Schengen Agreement, which allows for passport-free travel since 1985. At the heart of the issue is Greece's inability or unwillingness to tighten its borders and registration of the some 700k refugees.

    The home affairs ministers will meet before the weekend. The idea is that Greece will be given until the heads of state summit in the middle of the month to begin addressing these deficiencies or proceedings will begin, which could take three months, that would lead to Greece's suspension from the Schengen Agreement. To be sure, this agreement is not the same as EMU, so it would not be a Grexit in that sense.

    Why is Greece dragging its feet? There appear to be technical and political reasons. Greek laws, it appears, require the country's external borders to be monitored by Greek nationals. There are also some other idiosyncratic reasons offered. There is an unspoken reason that could be key. From a Greek perspective, the country has already experienced a profound encroachment on its sovereignty. Remember the key link is between solvency and sovereignty. Greece's problems with the former lead to the erosion of the latter.

    Some observers also suspect that Prime Minister Tsipras is seeking more concessions from EU. This is realpolitik. It depends on which side of the negotiating table one is on. It could be shrewd negotiations. It could be obstructionist.

    Greek officials argue that it has already spent 1.5 bln euros despite its fiscal straits to address the refugees challenge. They claim that request Frontex assistance for its sea borders five months ago. However, the government refuses to allow Frontex land operations. After all Greece does not share a land border with and Schengen member.

    While the prospect of diverging monetary is the key driver of the euro (and we note that the US premium over Germany on two-year money is at new multi-year highs today), the erosion of the Schengen Agreement, with border checks reintroduced, and the possible suspension of Greece, does little to build confidence in the European project. It also does nothing to help Greece. The 10-year yield has risen 53 bp over the past week, and 12 bp today alone. Greek equities have fallen by about 2.6% over the past five sessions, while the Dow Jones Stoxx 600 is up about 1.2%.”
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