Greece's 'Oxi' could be Spain's proxy

Greeks might be celebrating their stand against austerity but they're now facing collapse while eurozone leaders are only too aware any new concessions could set a precedent for future dissenters. 

Greek flag
Source: Bloomberg

The post gap bounce has hit global markets for the second week in a row, as initial fears ahead of the open subsided somewhat, leading to a significantly more bullish market than many traders were expecting to see today. However, the lesson learnt from last week should be heeded and as such, despite the positive European session so far, a more negative mentality is likely to permeate markets going forward.

The Greek decision to veto the latest bailout offer split opinions with perceptions ranging from 'inspirational' to 'suicidal'. Yet ultimately it could be down to Mario Draghi to dictate the state of play. With Greek banks on the brink of running dry, a broken financial system could bring the type of humanitarian catastrophe that just shouldn’t happen to a eurozone member. Without funds, the ability of businesses to provide food, wages or drugs, alongside many other modern day necessities, would be undermined. Against this kind of backdrop, it’s clear the crisis must be resolved one way or another before Greek banks begin to fail.

While Yanis Varoufakis might have hoped his resignation would count as a concession in further bailout negotiations, the Germans seem less than amused at the idea that their disproportionately large contribution to the Greek cause has been pushed back in their face once more. All parties know a deal needs to be done for the sake of both Greece and the eurozone project, but patience appears to be wearing thin. Thus, a meeting of minds between the newly-emboldened prime minister Alexis Tsipras and an increasingly frustrated group of creditors could be further away than ever at the very moment when failure could spell disaster.

Ultimately, the vote for ‘Oxi’ (No) could serve as a proxy for the likes of Spain, whose population has grown tired of spending cuts and tax hikes. Whatever the ultimate fate of Greece, it could be blazing a trail for other anti-austerity parties to follow elsewhere in the eurozone should renegotiation reduce the harshness of austerity, or if an eventual Grexit turns out to be beneficial.

Back in the UK, Rolls-Royce issued a disappointing market communication today, signalling a suspension of its £1 billion share buyback coupled with an uninspiring first-half trading performance and profit warning. Yet with a fresh executive board in place, new CEO Warren East is clearly seeking to get the bad news out the way ahead of what is expected to be a comprehensive restructuring under his tenure.

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