Euro, Yen Outlook Clouded as Greek Impasse Looms Large

Talking Points:

Greece Impasse in Focus as Eurozone FinMins Convene Emergency Meeting
Accord Seems Likely But Failure Threat Remains, Clouding Euro Outlook
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Greece remains at the forefront as Eurozone finance ministers gather to discuss the festering impasse between the anti-austerity government in Athens and its EU counterparts. The situation appears increasingly intractable: the Syriza-led administration of Greek Prime Minister Alexis Tsipras won a key confidence vote earlier n the day, confirming its mandate to upend the existing EU/IMF bailout program.

Speaking for the other side of the argument, German Finance Minister Wolfgang Schaeuble poured cold water on rumors of Greece getting a 6-month extension on its debt obligations, bluntly dismissing them as “wrong”. He added that Greece’s bailout program is “over” if the country doesn’t want its final aid tranche but warned that creditors “can’t negotiate about something new”.

On balance, both sides face significant negative fallout without an accord. Eurozone officials do not want to establish a precedent for a country to leave the currency bloc, a hitherto unprecedented outcome with unknown consequences. Meanwhile, Mr Tsipras and company surely understand their mandate rests on ending economic hardship, which voters equated with EU-imposed austerity. Their fortunes might swiftly turn if a disorderly “Grexit” fails to end the malaise or even compounds it.

With that in mind, it seems reasonable to suspect that some kind of accommodation will be reached. Political brinksmanship has not been unusual throughout the course of the Eurozone debt crisis, and more of the same before a stay of execution is cobbled together is not particularly surprising. Still, the possibility that the two sides fail to find common ground remains an acutely real one, shrouding the outlook for the Euro and sentiment-sensitive currencies like the Japanese Yen in uncertainty.

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