The ELA programme could be key to Greece remaining within the eurozone

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After the Greek voters rejected the terms of the bailout programme on Sunday, market reaction has been more subdued than some may have expected. The referendum results came in with 61.3% voting “No”, versus 38.7% who voted “Yes”. But the big decider could come today at the European Central Bank where the governing council will discuss the continued access to the Emergency Liquidity Assistance (ELA) programme.

The Greek payment of EUR4.2 billion to the ECB due on 20 July could be the key date for the liquidity programme. The curtailing of the ELA would mean tipping Greece’s liquidity crisis into a solvency crisis and could be the beginning of the end for Greece’s membership of the Eurozone.

In addition, German Chancellor Angela Merkel and French President Francois Hollande will meet today to discuss the Greek situation. As Tip TV regular Jane Foley, senior currency analyst for Rabobank, points out in a note this morning, German and French public institutions own more Greek debt than any other body. “Clearly a writing down of the debt would not be welcome,” says Foley. “That said, some degree of restructuring at some point in time is arguably inevitable and last week the IMF reported that Greece would need massive write-downs on its EUR330bn debt.”

“All of these uncertainties are likely to have a negative impact on confidence and investment decisions within the Eurozone. Oil prices have come under additional pressure from Eurozone growth concerns in addition to signs that resolution with Iran over its nuclear programme could be close. Concerns over Chinese growth have been adding to the pressures on commodities prices and we see risk of rates cuts from the RBA, BoC and RBNZ going forward.”

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