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Update: Greece and the Eurozone

By beled | July 28, 2015

Extract from the June 2015 quarterly report:

Greece dominated the headlines for much of the quarter as each new deadline came and went without resolution. Its leaders failed to make a €1.55 billion loan repayment to the International Monetary Fund at the end of June and proposed a modified bailout package that would restructure the nation’s debt and extend repayment by two years. Greek leaders also called for a referendum, which took place shortly after the end of the quarter, in which a clear majority of voters decided against accepting the austerity measures demanded by its creditors. Despite this the Greek government ultimately agreed to a tough economic package with its creditors which has kept Greece in the Eurozone and will release much needed funds. The yields on short-term Greek debt soared, reflecting the high level of uncertainty.

Fortunately there is a lower risk of contagion now than was the case in 2011/2012 when the Eurozone had no growth and no monetary safety net. The European Central Bank (ECB) continued with its €60 billion per month quantitative easing (QE) programme and the European Court of Justice ruled that the ECB’s Outright Monetary Transactions (OMT) facility is within the scope of European treaties. This increases the ECB’s scope to provide additional extraordinary policy measures to calm markets if needed.

Consumer prices in the Eurozone rose modestly in the second quarter, alleviating concerns about deflation. ECB president, Mario Draghi, expressed confidence that “the weak and uneven recovery experienced in 2014 will turn into a more robust, sustainable upturn” and reconfirmed the ECB’s intention to continue its QE programme until September 2016 or until the Eurozone achieves its inflation target of 2%.

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