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Grexit

After protracted negotiations, Greece agreed to new bailout terms in June 2017 – making Grexit unlikely in the near future. Find how that affected the markets, what might happen in the future, and take a position with IG.

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Why was Grexit important to traders?

The European Union (EU) entered 2017 with a slew of problems to overcome: elections in several key member states, a new US president who had been less than flattering about the union, and the beginning of Brexit negotiations with Britain.

Threatening to complicate things yet further was Greece’s ongoing debt crisis, with another loan repayment due in July – meaning the risk of another default, seen by many as a step towards Grexit.

Losing two member states in two years would have been a disastrous situation for the union, and any sign that talks were stalling would have been seized upon by the EU’s detractors in France, Germany, Britain and the US. That meant Greece’s debt talks had the potential to play out across EUR/USD, the Germany 30 and more in a big way.

Markets that may be affected

Markets Sell Buy Updated Change
Greece 25
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Germany 30
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France 40
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Spot FX EUR/USD
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Spot FX EUR/GBP
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Commerzbank AG (LSE)
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BNP Paribas SA
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Credit Agricole SA
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Spot Gold
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Prices above are subject to our website terms and conditions. Prices are indicative only.

What happened to Grexit?

Talks over Greece’s third bailout took place between the so-called ‘troika’ of lenders: the European Central Bank (ECB), International Monetary Fund (IMF), and a fund sponsored by several European governments (most notably Germany, France and Italy).

Greece needed extra funds to meet €6.3 billion in bond repayments. Default again, and the writing would have been on the wall for Grexit.

With the IMF sceptical of a deal that didn’t lessen Greece’s debt load, and Germany unwilling to ratify any solution that didn’t include IMF involvement, it looked like talks might go down to the wire. But in the end, a compromise was agreed well before the deadline.

Once again, though, the outcome fell short of what most parties wanted. Analysts were quick to point out that the deal didn’t actually include any real provisions for reducing Greece’s debt load – with debt relief only being considered in 2018, and taking the form of loan repayment extensions. Without that debt relief, there’s no chance of Greece joining the ECB’s quantitative easing (QE) programme and attracting outside investment once more.

How did it affect the markets?

The lack of debt lightening may explain why the market reaction to Greece’s new bailout deal was fairly muted, with the DAX and EUR/USD rising moderately on the day of the announcement and the GR25 falling.

If that’s the case, then we’ll only find out whether there is real substance to this bailout in 2018, when the troika starts to discuss easing Greece’s debt load. For now, this deal offers some light at the end of a very long tunnel – but until Greece can join the ECB’s QE programme and begin attracting the outside investment that is crucial to its full recovery, the markets may remain unmoved.

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