Onto German and Eurozone GDP

Now that Greece has repaid € 766mn in principal to the International Monetary Fund, we revert to EU-Greece negotiations on the economic reforms required for Athens to obtain the remaining €7.2bn of its bailout program, which ends next month. Today’s reports indicated that Greece has used the last penny available at its IMF coffers, which raises the urgency for PM Tsipras to finalise reforms needed to obtain much needed liquidity.  EURUSD remains capped at 1.1285 as 10-year bund yields are capped at 0.80%.

If €766mn was hard to obtain, then how (and what) will Athens do meet the four loan repayments to the IMF–totalling €1.6bn—by end of June?

Greece hasn’t received any new funds from its international lenders since August. The only source of liquidity available to Greek lenders since February has been the Emergency Liquidity Assistance lifeline to Greek banks by the European Central Bank. Today, the ELA has been raised by €1.1bn to €80bn This will likely continue until a deal is reached with international lenders for the €7.2 bn to be disbursed.

The main points of contention in reforms negotiations remain over pension cuts, VAT hikes and labour market liberalisation. No progress had been made since February.

Tsipras’ referendum option

Tsipras is left with the option of calling snap elections, or more likely a referendum on staying/leaving the Eurozone in the event that no deal is reached with the Eurozone. With polls showing Greeks wanting to vote to stay in the Eurozone, Tsipras would be obligated to wave the list reforms to his people as the condition to stay in, while bypassing the anti-austerity hardliners in his Syriza party. This way, Tsipras remains PM, Syriza retains power (with added vote of confidence), Greece keeps the euro and austerity sceptics are out.

If those funds are paid by June, then Greece would have passed its 2^nd bailout, and a …3^rd bailout is most likely.

Onto Eurozone and German GDP

Euro traders will take a break from Greece to monitor Wednesday’s release of German Q1 GDP, expected 0.5% q/q from 0.7% and ½% q/q from1.4%. Eurozone Q1 GDP follows at 10 am BST, expected to show a rise to 0.4% q/q from 0.3% and 1.0% y/y from 0.9%. The increasingly positive correlation between rising 10-year bund yields and EURUSD will be closely watched, especially if any upside surprise in these figures force EURUSD higher above $1.1300. Any disappointment, coupled with soft German CPI risks retesting the $1.1130s.