Stocks fall as uncertainty returns in Greece. The S&P falls 0.7% to 2,108 and the Dow loses 1.0% to 17,966. The U.S. Treasury acted as a haven security amid renewed pessimism in Greece, as the yield fell 4 basis points to 2.37%. The euro rebounds slightly to $1.1199 after falling 1.6% yesterday. Greece’s reform proposals were deemed inadequate for creditors, who want to see more concessions regarding the pension program. Tsipras has only a narrow majority in parliament which leads to further pessimism as many speculate that he will be unable to convince his legislators to accept any deal at all. Greek stocks fall 1.8% as yields hold steady.
Following the proposal yesterday, Tsipras was unable to finalize the deal today. A 7 hour meeting was described with “not much progress” according to one eurozone official. It appears that large differences still separate the two parties in spite of optimism earlier in the week. They are meeting again tomorrow, as creditors still insist on cuts to the pension system and a more rapid increase to the minimum retirement age. Greece needs a deal this week in order to make the €1.5bn payment to the IMF on Tuesday. Tsipras says that in the past in situations involving Ireland and Portugal, these countries submitted similar forms which were accepted. As a result he believes that creditors either don’t want a deal or that they are raising their standards for Greece. €100MM flowed back into Greek banks today riding from optimism earlier this week, and as a result Greece did not have to request ELA.
It appears to be the consensus that the short term impact on the euro will be limited. Banks and other financial institutions in the region are less exposed to the country’s potential fallout than they were in 2011 and 2012. Regardless of whether or not Greece stays or leaves the eurozone, this crisis has exposed flaws in the eurozone’s structure. It exposes the idea that membership in the eurozone is reversible. The risk increases that if an anti euro party wins election, further countries will have the groundwork to leave the euro. This is considered to be a possibility in France, Italy, or Spain. In the near term, this uncertainty and risk will be masked by the ECB’s quantitative easing program which will shield these problems for the time being.