Greek prime minister Alexis Tsipras had indicated on Tuesday that he was ready to negotiate on the terms of the bailout. The question now is whether the referendum will go ahead or no, and at this point creditors are not ready to negotiate until the referendum goes ahead, says Sarah Hewin, Senior Economist at Standard Chartered.
As of yesterday, the second bailout was over, so whatever the terms that may be discussed will be negotiated from scratch, she says.
This will be the third bailout for Greece. Hewin feels more conditions will be imposed on Greece this time around and from the Greek point of view it will be more conciliatory in nature.
As far as the market is concerned, she says 'volatility will be the name of the game'.
Below is the verbatim transcript of Sarah Hewin's interview with Latha Venkatesh and Anuj Singhal on CNBC-TV18.
Anuj: We are hearing news that the Greece Prime Minister may have accepted most terms for a bailout, how credible would this news be? We have seen quite a bit of reaction in European markets, DAX is up 3 percent or so.
A: Yes, it is a story with lots of twists and turns. The Prime Minister yesterday had indicated that he was prepared to negotiate but the second bailout has expired now so any discussion has to be over a third bailout. The question is whether the referendum will go ahead or not. We have had nothing to indicate that the referendum won’t happen and at this point the creditors are not prepared to negotiate until the referendum result is clear. So, we are still in limbo moving closer to a more conciliatory negotiating stance from the Greek side. However, we need to wait to see developments in particular on whether the referendum is going ahead as planned. So far we have had no indication that the referendum is going to be called off.
Latha: The markets have seen a significant amount of rally both the bonds and the equity markets. Are the markets saying that the worst is definitely behind them and we will not see any kind of brinkmanship anymore or is it still going to be one step forward, two steps backward?
A: Market is looking for pieces of good news and so an indication that the government in Greece is prepared to discuss bailout terms that are aligned with the creditors is good news. However, bear in mind that we are now starting from scratch with these negotiations and the bailout program will come with conditionality and the conditions that were on the table previously may not necessarily be on the table over the coming two years; this is what is being discussed now.
It is not the finishing of the previous program that has ended; it is looking ahead to a medium-term program which will have many more implications for conditions that will be applied to Greece. So, this is an unhonest belief as well as an olive branch towards the creditors. However, it doesn’t mean that it is anything that can be resolved in a short space of time. It is going to involve sitting down, discussing, negotiating and particularly over the conditions that creditors will need to see in order for new finance to be extended. I think that as long as the referendum is proceeding the creditors will not be taking any action whatsoever at this point.
Anuj: What kind of reaction would you expect from the markets from here on? Do you think the market just simply recoups all the losses, moves on or is it likely to remain volatile?
A: Volatility is going to be the name of the game, because we get a new story every hour at this point and it changes sentiment with each announcement. Actually we will see ongoing volatility assuming referendum is held and then until that result is known, there will not be courtesy for markets.
Latha: Will you expect more strength from the euro on the ground that Union stood its ground and the periphery kind of fell in line. So, further questions on the future of the euro are kind of put to rest. Is that a fair interpretation?
A: I am not sure that there is ever any doubt of the future of the euro. The questions I suppose still remain if we get a no vote, if there is a Grexit and that is still possible at this stage. If we get a Grexit, then the focus will shift to the other countries that previously received bailouts. They are in a much stronger position and the ring fencing is going to be much more solid and therefore it looks likely the euro will have a long future.
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