Afternoon analysis 22.06.2015

The level of uncertainty increased ahead of an emergency summit of the European Union. The euro was volatile due to information noise. The zloty gave away its earlier gains as the market optimism faded.

The beginning of the Monday session was influenced by optimism that Greece may reach a deal with its international creditors. However, the second part of the day revealed a rising caution among investors.

On Sunday, Greece revealed a new reform plan. The proposal included the expectations of international creditors who anticipated reforms in taxes and the pension system. Later, comments concerning the plan were rather positive (more on the issue in our morning commentary). Given the situation, one could have expected a positive outcome from today's emergency EU summit.

Nevertheless, the market enthusiasm was dampened as the European politicians who took part in the meeting of finance ministers assessed the situation. The Eurogroup Chief Jeroen Dijsselbloem said that any final agreement is impossible as the Greek proposals came too late. Moreover, the Irish Finance Minister Michael Noonan expected the next Eurogroup meeting to be on Thursday.

These factors hit the market sentiment. It was reflected by the stock indexes which gave away some recent gains. Moreover, the emerging market currencies - including the zloty - also trimmed earlier increases. The Greek assets were also under pressure.

Limited impact

The Greek negotiation position is getting weaker with every hour. A bankruptcy scenario would be devastating for an economy that struggles with recession and record high unemployment (about 25 percent). Moreover, the banking system is fully dependent on the liquidity from the European Central Bank. If the liquidity provisions are cut off, creditors will collapse immediately.

Today, the ECB raised the ceiling on the emergency cash available for Greek banks. It was the third decision of this kind in the last six days. The limit has been increased by 2 billion euro, according to unofficial sources. As a result, the ceiling was increased by 6 billion. The value corresponds with deposit outflows from the banking system.

Nevertheless, Greek bankruptcy would have limited impact on the German economy. Estimated losses are about 1 billion euro every year starting from 2020. In total, it would be about 40 billion euro, which Greece is expected to repay. The information was given by the Bloomberg agency citing unofficial sources.

If Greece goes bankrupt, the impact of this scenario would be rather local and limited to the Greek financial markets. As a result, the broad market was quite calm and the Greek market remained volatile.

Weaker zloty

It is very likely, that there will be no crucial decisions about Greece today. As a result, the uncertainty stemming from the ongoing Greek negotiations will put pressure on the markets.

The zloty exploited the morning optimism and increased against its major pairs. However, later on the Polish currency gave away its gains. Until the Greek crisis is over, the zloty will not increase significantly.