7 Things You Need to Know About the Crisis in Greece

Copyright Trine Juel/Flickr
Copyright Trine Juel/Flickr

With Greece nearly certain to default on a 1.6-billion-euro bond payment due June 30, the long-feared prospect of Hellenic financial chaos is just about here.

The nation’s banks closed this weekend, and the government imposed controls of the movement of capital in and out of the country. A Greek referendum is set for Sunday, in which voters will decide whether to accept more austerity or face the prospect of being booted from Europe’s currency union.

1. How bad is the problem? 

Greece owes foreign creditors about 280 billion euros, including $242.8 billion to public or quasi-public entities, such as the International Monetary Fund, the European Commission and European Central Bank. It doesn’t have the cash to make the interest payment due this week, and the failure to make a deal to restructure and refinance the obligation raises the prospect of an imminent default. The two sides are talking about an 18-billion-euro package to refinance some of that debt.

Greece’s private creditors took a write-down of about 75 percent on debt owed to them in 2012, but the public entities have resisted a similar move.

2. Why have talks broken down? 

The so-called Troika of the IMF, ECB and EC are looking for a combination of spending cuts (the most politically sensitive of which are to pensions that function as the Greek equivalent of Social Security) and tax increases. Greece’s top tax rate of 42 percent already applies to annual incomes as low as 42,000 euros. In addition, the nation has a value-added tax of as high as 23 percent, and Social Security taxes are also much higher than in the U.S. The country is already having huge problems collecting taxes it is owed. Greek Prime Minister Alexis Tsipras, pointing to the nation’s 25.6 percent unemployment rate, argues that Greece can’t handle more austerity.

3. What did the government do this weekend?

Greece’s anti-austerity Syriza party called for an election, hoping voters would back its push to get creditors to back down. It also imposed so-called capital controls to halt the flight of money out of the country and closed banks for a week.

While most domestic transactions are little affected, there is a daily cash-withdrawal limit of 60 euros, and international transactions are subject to approval. Greek banks had been reporting a sharp decrease in deposit balances since at least April, cutting into the banks’ ability to meet their own international obligations. Europe has also been helping Greek banks with a program called Emergency Liquidity Assistance, but Goldman Sachs economist Huw Pill said Sunday that the assistance could end early this week as the rest of Europe tries to cap its total exposure to Greece.

“Although the Greek government has repeatedly stressed that this is not a referendum on Greece’s euro membership, we believe that in practice it is,” IHS Global Insight economist Diego Iscaro wrote Monday. “In the event of a ‘no’ win, Greece’s euro zone membership will be seriously jeopardized. The creditors are unlikely to change their position markedly, and it would be impossible for the Greek government to accept the current proposal after being defeated by popular vote.”

4. How will the mess affect the markets in Europe and the U.S.?

European markets traded sharply lower on Monday, and the Dow Jones Industrial Average opened nearly 1 percent lower in New York. But the effect may be short-lived: S&P Capital IQ published a 70-year historical analysis of past market shocks that found events like this produce an average decline of 2.4 percent on the next trading day, which has been recovered in an average of 14 trading days.

“Greece represents less than 2 percent of the EU’s GDP,” S&P strategist Sam Stovall wrote. “By itself, its default or exit won’t upend the EU. … Yet if this drachma drama triggers a market decline in excess of 10 percent, not seen since October 2011, it may be a blessing in disguise. As history has shown, prior market shocks have usually proven to be better opportunities to buy than bail, primarily because the events did not dramatically alter the course of global economic growth.”

5. What happens if Greece leaves the euro or is forced to leave the euro?

Estimates of how little Greek drachmas may be worth are all over the place, from 340 to the U.S. dollar to as little as 1,000 drachmas to the dollar. Even before Greece is (or isn’t) forced to leave the currency union, there is talk of the government meeting its obligations in so-called “parallel currency,” whose value is highly uncertain.

6. Has the IMF’s austerity program worked so far?

No. Austerity has been the rule in Greece since the first debt-restructuring program was approved in 2010. But Greece’s unemployment rate has nearly tripled since, and annual gross domestic product has dropped 100 billion euros, or almost 30 percent. Greece’s slashed spending and tax hikes brought the nation’s “primary deficit,” or deficit before debt-service payments, into surplus territory in 2010. But the program was the equivalent of slamming on the economy’s brakes: Output dropped so rapidly that the primary deficit is now again 2 percent of Greek gross domestic product even with tough controls on spending. That’s not much different than the U.S., but the U.S deficit as a percentage of output is declining because the U.S. economy Is growing.

7. What does this mean for Greek tourism?

Uncertainty overshadows Greek tourism. And the stakes of not interrupting tourism are high indeed: Tourism accounts for 18 percent of the nation’s economy and employs a quarter of its workers, according to the Association of Greek Tourism Enterprises. Greece attracts as many as 17 million annual visitors, twice the nation’s population, and is virtually the only industry still growing in a nation where an estimated 59 businesses are closing each day.

But already, tourists are reporting difficulty getting cash, because automated teller machines are running out, and the threat of capital controls had some merchants unwilling to accept credit cards. Over time, leaving the euro and devaluing the drachma would lead to a period where Greek vacations should be very cheap for Western tourists.

How long that would last, and the impact it would have on hotels and other merchants, is hard to forecast. But resort owners are resisting creditor proposals to end or curtail their tax breaks for resorts on more remote islands and to raise the value-added tax on lodging.

Written by Tim Mullaney of CNBC

(Source: CNBC)

World Markets Suddenly Facing a Summer of Trouble and Strife

© Provided by CNBC
© Provided by CNBC

It’s approaching that time of year when market activity typically slows, as traders and central bankers alike depart for long holidays.

But this summer is shaping up to be anything but quiet for markets, with Greece at a cross roads, stocks in China nose diving and rising uncertainty about the timing of a U.S. interest rate rise.

“Summers are always difficult in the markets, but every summer turns out to be interesting and there’s so much going on this summer,” Bill Blain, a strategist at Mint Partners in London, told CNBC on Friday.

While the crisis in Greece, which holds a referendum this Sunday on whether or not to accept creditor-proposed bailout terms, is likely to be the trigger for near-term volatility, markets have much bigger fish to fry in the weeks to ahead.

Take for instance the slide in Chinese stock markets, which is fuelling concerns about the outlook for the world’s second biggest economy.

The benchmark Shanghai Composite index, which had risen as much as 113 percent between November and a peak in June, has collapsed, sliding almost 30 percent.

“It’s not Greece but China we should be concerned about,” said Blain. “The correction that we’re seeing in stocks is fascinating and the fact that the authorities are clearly nervous should make markets nervous,” he said, referring to measures taken this week by Beijing to shore up the battered equity market.

Fed up with Fed?

Analysts said uncertainty about the timing of a rise in U.S. interest rates was another key reason to keep traders on edge over the summer months, with Thursday’s softer-than-expected June jobs data prompting a re-think on the rate outlook.

“I think the biggest risk is not so much Greece; not so much China (stocks), which is in a dramatic move but is pretty localised, I think it is the Fed and the U.S. economy,” Giles Keating, the global head of research for private banking and wealth management at Credit Suisse, told CNBC’s “Squawk Box Europe” on Friday.

The timing of the Fed’s first rate hike since 2006 and the pace of subsequent monetary tightening is viewed as one of the biggest risks to global markets – from emerging markets, which are seen among the most vulnerable to a rise in risk aversion, to bond markets, which have already seen heavy selling.

Slim Feriani, CEO of MENA Capital, said that while Greece was a concern, Fed policy was a bigger worry for markets.

“The bigger cloud hanging over markets in general in the next 6-12 months is the Fed and what they do and when,” he said from a fund forum in Monaco earlier this week.

Blain at Mint Partners said there was no reason for the Fed to hike rates soon, as there was no pressure on the economy yet. He suggested that “perhaps a lot of the stock market upside has been overdone.”

The tech-heavy Nasdaq  (.IXIC) hit a record high in June, while the broader S&P 500  (.SPX) closed at about 2,077 points on Thursday – about 2.5 percent off a record high hit in May.

Uncertainty surrounding Greece meanwhile is unlikely to go away, with Sunday’s shock referendum suggesting the country will remain a source of market volatility in the weeks ahead, analysts said.

Greece this week became the first advanced economy to default on a loan from the International Monetary Fund and its worsening financial crisis has fuelled fears that it will become the first country to leave the euro zone.

If Greek voters back the creditors’ bailout plan—which the anti-austerity government has recommended they reject—Greek Prime Minister Alexis Tsipras has made it clear he will quit.

“There is a view that we’re going to get this referendum result on Monday morning and that will explain everything,” Blain said.

“All the referendum will do is start the next phase of negotiations and the crisis continues. If we get a ‘yes’ vote, we could be dealing with a new government as it looks inevitable the government could fall — so there lots of things for markets to worry about.”

Written by Dhara Ranasinghe of CNBC

(Source: CNBC)

Europe Raises Heat on Greece to Make Further Concessions

© Daniel Roland/AFP/Getty Images
© Daniel Roland/AFP/Getty Images

European policy makers raised pressure on Greece to return to the negotiating table and make further concessions to unlock aid, as each side laid out its demands to rally support for its respective position.

Stocks and the euro fell on Monday as the extent of the policy divide that remains to be resolved was laid bare after weekend talks billed by European officials as a last attempt to end the standoff broke up early.

Europe needs a “strong and comprehensive agreement, and we need this very soon,” European Central Bank President Mario Draghi told lawmakers at the European Parliament in Brussels on Monday. “While all participants need to go the extra mile, the ball lies squarely in the camp of the Greek government.”

With signs that negotiating fatigue was stoking intransigence on all sides, some euro-area officials publicly raised the prospect of Greece’s exit from the currency region as the Greek government suggested it had reached the limits of its ability to make concessions. Finance Ministry officials from the 19-nation euro zone are due to hold a Greece call on Tuesday ahead of a meeting of ministers later this week.

“We’re reaching a potential period of turbulence if no accord is found,” French President Francois Hollande told reporters in Paris on Monday. “This is a message for Greece, because Greece mustn’t wait, it must renew talks with the institutions,” he said, referring to the International Monetary Fund, the ECB and the European Commission.

Awaiting Invitation

Greek Prime Minister Alexis Tsipras’s government said that it was awaiting an invitation from its creditors and is ready to respond anytime to continue the negotiations, according to an e- mail from the premier’s office.

The EU commission and IMF separately outlined their respective goals in the talks that broke up after just 45 minutes on Sunday. The focus now shifts to a June 18 meeting of euro-area finance ministers in Luxembourg. Officials have focused on that as a make-or-break session for Greece’s ability to avert default and stay in the currency union.

Tsipras, in a statement on Monday, portrayed Greece as the torchbearer of democracy, standing firm against creditors’ demand for pension cuts.

“One can only suspect political motives behind the fact that the institutions insist on further pension cuts, despite five years of pillaging,” Tsipras said. “We will wait patiently til the institutions adhere to realism.”

That prompted a rebuke from the European Commission.

“It is a gross misrepresentation of facts to say the institutions are calling or have called for cuts in individual pensions,” spokeswoman Annika Breidthardt told reporters in Brussels.

Written by Angeline Benoit and Nikos Chrysoloras of Bloomberg

(Source: MSN)

Eurozone Reaches Deal on Greece

© European Pressphoto Agency
© European Pressphoto Agency

BRUSSELS—Eurozone leaders said Monday morning that they would give Greece up to €86 billion ($96 billion) in fresh bailout loans as long as the government of Prime Minister Alexis Tsipras manages to implement a round of punishing austerity measures in the coming days.

The rescue deal—hammered out after 22 hours of, at times acrimonious, negotiations between the currency union’s leaders and finance ministers—requires the Greek left-wing government’s near-total surrender to its creditors’ demands.

But it gives the country at least a fighting chance to hold on to the euro as its currency.

“The deal is hard,” Mr. Tsipras said after the summit, warning that the measures required by creditors will send the country’s economy further into recession.

European stocks rallied early Monday on the news. By mid-morning, the Stoxx Europe 600 was up 1.5%, building on Friday’s hefty gains. Germany’s DAX rose 1.4%, France’s CAC-40 added 1.9% and London’s FTSE 100 rose 0.6%. In southern Europe, Italy’s FTSE MIB climbed 1.2% and Spain’s IBEX gained 1.5%.

By Wednesday, Athens’s Parliament has to pass pension overhauls and sales tax increases that voters overwhelmingly rejected in a referendum just one week ago. Greece now has to implement European Union rules that make it easier to wind down broken banks, including by sharing the cost with investors and creditors.

“Trust needs to be restored,” German Chancellor Angela Merkel said at a news conference.

“The agreement was laborious. It took time but it was done,” said Jean-Claude Juncker, the president of the European Commission.

“There won’t be a Grexit,” Mr. Juncker added, referring to a Greek exit from the eurozone.

In a concession to Greece, eurozone governments will consider measures to make the country’s debt more manageable, for instance by giving it more time to repay rescue loans.

A detailed rescue program that will have to be negotiated after the first overhauls and cuts have been implemented will contain measures that go far beyond the kind of oversight and external control other governments under eurozone bailouts have endured.

The most divisive step demanded by Greece’s creditors is the creation of a fund that would hold some €50 billion in state-owned assets slated to be privatized or wound down in the coming years. The fund will be under European supervision, Ms. Merkel said.

Most of the money raised will go to pay off Greece’s debt and help recapitalize its broken banks, while €12.5 billion can be used for investment, said Ms. Merkel.

“The advantages outweigh the disadvantages,” she said about the deal, while warning that Greece’s path back to growth will be long and arduous.

Despite these big concessions by Mr. Tsipras, Greece’s future in Europe’s currency union still hangs in the balance.

Passing the tough new bailout measures through Greece’s Parliament could split Syriza and its right-wing coalition partner, the Independent Greeks, which in turn could trigger fresh elections. And there wasn’t an answer on when the country’s banks—closed for most business for the past two weeks—will reopen or how Greece will make a €4.2 billion payment to the European Central Bank on July 20.

The eurozone’s finance ministers will discuss how to come up with a mechanism to meet Greece’s short-term financial needs “as a matter of urgency,” Donald Tusk, the president of the European Council who led the talks, said after the summit.

A statement issued after the summit says Greece will need between €82 billion and €86 billion in fresh funding over the next three years. Between €10 billion and €25 billion will be required to recapitalize Greek banks, damaged by months of deposit outflows and two weeks of capital controls.

French President François Hollande, whose government lobbied hard for Greece in recent weeks, said he expects the ECB to step in with additional liquidity for Greek lenders, as long as Athens follows through on a deal. That could allow banks to gradually reopen.

“That was the indispensable condition, but it will take a few days,” Mr. Hollande said.

In a concession to Greece, eurozone governments will discuss ways to make the country’s debt load more manageable later this year.

“There will be a reprofiling of the debt by extending maturities and doubtless a negotiation on the interest rates,” said Mr. Hollande. “That is part of the agreement.” Ms. Merkel stressed that there won’t be a cut to the nominal value of rescue loans.

European officials said negotiations came close to collapse at some points during the night, when Mr. Tsipras argued that some of the creditors’ demands would be impossible to meet. Germany in particular has been driving a hard line, which for much of the evening included the possibility of a “time-out” for Greece from the currency union.

“In Germany there was strong opinion for Grexit,” Mr. Hollande said, “and not just in Germany.”

“I refused this solution,” he added.

As part of the deal, Greece’s administration will be modernized and depoliticized, Ms. Merkel said, adding that the Athens government will be expected to make first proposals by July 20.

The measures laid out in Monday’s statement reach deep into the workings of Greece’s economy. They include changes to labor laws that would make it easier to fire workers, as well as the further liberalization of markets for products such as pharmaceuticals, milk and baked goods, the statement said. Greece also would have to privatize state assets, including the electricity network operator.

Contrary to Greece’s wishes, the International Monetary Fund will remain involved in bailing it out even after the fund’s existing rescue program expires in March. Athens defaulted on a €1.56 payment to the IMF on June 30 and is unlikely to make a €456 million payment due Monday. The summit statement said it was important for the government to cover the failed payments.

“It has been a laborious night, but I think it is a good step to rebuild confidence,” said IMF Managing Director Christine Lagarde.

Written by Gabriele Steinhauser, Viktoria Dendrinou, Matthew Dalton of The Wall Street Journal

(Source: MSN)

Exclusive: Greek Banks Face Closures, Bailout or Not – Sources

© REUTERS/Cathal McNaughton
© REUTERS/Cathal McNaughton

Some large Greek banks may have to be shut and taken over by stronger rivals as part of a restructuring of the sector that would follow any bailout of the country, European officials have told Reuters.

European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro.

But regardless of whether or not fresh funds are now unlocked for the government, some Greek banks, damaged by political and economic havoc, may have to be closed and merged with stronger rivals, officials, who asked not to be named, told Reuters.

One official said that Greece’s four big banks – National Bank of Greece (NBGr.AT), Eurobank (EURBr.AT), Piraeus (BOPr.AT) and Alpha Bank (ACBr.AT) – could be reduced to just two, a measure that would doubtless encounter fierce resistance in Athens.

A second person said that although mergers of banks were necessary, this could happen over the longer term.

“The Greek economy is in ruins. That means the banks need a restart,” said the first person, adding that prompt action was necessary following any bailout between Athens and the euro zone. “Cyprus could be a role model.”

“You have a tiny bit of time … you would do restructuring straight away.”

Greece’s financial system has been at the heart of the current crisis, hemorrhaging deposits as relations between the radical left-wing government of Prime Minister Alexis Tsipras and creditors worsened.

After Athens defaulted on debt owed to the International Monetary Fund last month, the ECB froze emergency funding for the banks, precipitating their temporary closure and a 60-euro daily limit on withdrawals from cash machines.

A decision by Greek voters last week to reject bailout terms offered by the country’s international creditors prompted the ECB to maintain its cap, meaning that the banks will run out of cash soon.

LIQUIDITY AND SOLVENCY

A year ago, Greece’s bankers thought they were on the cusp of a new era. They had restructured as part of the country’s bailout deal, had raised fresh equity from international investors and had regained access to debt markets to fund lending.

But the economic and political turmoil that has ensued since Tsipras came to power in January means that they are dangerously short of cash.

Even after the immediate liquidity problems are worked out, any restructuring of the sector would first require a prompt recapitalization of Greece’s strongest lenders because rising bad debts and exposure to Greek government bonds mean they are in danger of becoming insolvent.

A timeline and exact plan for the sector’s revamp could be finalised after a recapitalization.

Such action would face stiff political resistance in Athens, where Tsipras has pledged to ‘restore our banking system’s functioning’. Bank mergers save money but cost jobs, making them unpopular.

Reflecting such obstacles, a second person said: “There would be an interest in having less banks … but I’m wondering whether this would make sense in the short term.”

Any closures, which would be managed primarily by Greek authorities under the watch of the European Central Bank’s supervisors, would not typically affect customers as their deposits and accounts would migrate to the bank’s new owner.

Greece’s finance ministry was not immediately available for comment, while a spokeswoman for the ECB said: “The ECB Banking Supervision is closely monitoring the situation of Greek banks and is in constant contact with the Bank of Greece.”

CYPRUS MODEL

Any such revamp would be a stark reminder of the withered state of the country’s financial system, where deposits had shriveled to their lowest level in more than a decade before savers were forced to ration cash withdrawals.

Of Greece’s four big banks, National Bank of Greece, Eurobank and Piraeus fell short in an ECB health check last year, when their restructuring plans were not taken into account.

Only Alpha Bank was given an entirely clean bill of health.

A restructuring could follow a similar pattern to Cyprus, where one of the island’s two main banks was closed as part of its stringent bailout, and Ireland, where three lenders were either shut or merged with rivals.

But a senior Greek banker, while acknowledging that the ECB could embark on fresh stress tests and “set the recapitalization, restructuring process going again”, said any mergers would reduce competition.

“If the argument is cost efficiency and whether Greece is overbanked, with four players there is a semblance of competition,” he said. “With fewer players, competition will be reduced even more.”

Written by John O’Donnell of Reuters

(Source: MSN)

Greece Submits a Last-Ditch Bailout Proposal

© Provided by IBT US
© Provided by IBT US

In an eleventh-hour attempt at making fast-approaching debt repayments and avoiding a disastrous exit from the eurozone, the Greek government has formally filed a request for support from Europe’s bailout fund. The one-page letter outlining the request, leaked to the media Wednesday, gives a broad overview of the bailout’s proposed terms and the economic reforms Greece promises to make.

Without going into specifics, the letter states Greece would immediately overhaul parts of its tax and pension systems, with changes coming down “as early as the beginning of next week.” Greece’s creditors at the European Central Bank have made tax and pension reforms paramount to extending its support program to Greece, which recently missed a scheduled 1.5 billion euro ($1.7 billion) payment to the International Monetary Fund.

According to the request, the Greek government would seek a three-year lending facility, an increase from last month’s two-year request. The Greek government owes 3.5 billion euros ($3.8 billion) to the ECB on July 20, a payment that the government currently cannot make. Numerous European officials have made the unprecedented assertion that failure to secure an agreement in the coming week will likely mean a Greek exit, or Grexit, from the eurozone.

Although this request formally opens talks with the European Stability Mechanism, the eurozone’s 500 billion euro bailout fund, Greece’s full proposal will be outlined in coming weeks.

Greece’s left-wing Syriza government has steadfastly demanded its creditors offer debt relief, a measure supported by the IMF. Despite initial proclamations its negotiators wouldn’t budge in resisting further austerity measures, however, the Greek government has offered concessions to some of its creditors’ budget and spending demands.

The letter hints at Greece’s continued insistence on debt relief: “Greece welcomes an opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term.”

Eurozone finance ministers are expected to discuss the request Wednesday via teleconference.

Written by Owen Davis of International Business Times

(Source: MSN)

NYSE Trading Halted; Stocks Down 1% as China, Greece Weigh

© Provided by CNBC
© Provided by CNBC

Trading on the New York Stock Exchange in late-morning trade on Wednesday with U.S. stocks extending their losses as continued concerns about Greece and the extended selloff in the Chinese market pressured investor sentiment.

“We’ve had some technical malfunctions. Some may be related to connectivity with other exchanges. I believe we’re going to have a temporary pause certainly in a variety of stocks perhaps floor wide,” Art Cashin, director of floor operations at the NYSE, told CNBC, adding that the halt will not cause a move in a particular direction.

Other exchanges, however, continued trading normally. The NYSE later said that all open orders amid the halt will be cancelled.

“What happens with these situations is often you get a sort of residual result. You’re all clear or you get caught up to date and there’s a little bit of a backlog that pops up somewhere, and it tends to jam things up. So I don’t think any of us has quite enough information yet,” Cashin added.

The Dow Jones industrial average traded about 175 points lower when trading was halted as the major averages declined, with the Nasdaq Composite briefly off more than 1 percent as biotechs and Apple (AAPL) plunged more than 1 percent. The iPhone maker was also the worst performing stock in the Dow.

The S&P 500 struggled to hold gains for the year. The index dipped into negative territory Tuesday but recovered in afternoon trade to hold slightly higher for 2015.

“I think we’re just realigning the U.S. market with the declines elsewhere,” said Peter Boockvar, chief market analyst at The Lindsey Group.

In China, the Shanghai Composite closed nearly 6 percent lower despite supportive government measures. The index has fallen more than 30 percent from its mid-June peak amid frequent bouts of extreme volatility. Analysts say the turbulence is starting to unnerve regional investors.

“There was no real trigger until Chinese stocks became too pricey,” said Nick Raich, CEO of The Earnings Scout. “The trigger that sent this all off has been the Greece debt crisis.”

European stocks traded higher on Thursday amid hopes of a Greece deal. However, the indices are more than 2 percent lower for the week so far.

The Greek government has until Friday morning to present detailed reform proposals to allow a bailout deal by a Sunday summit.

Greek Prime Minister Alexis Tsipras addressed the European Parliament on Wednesday, lambasting Europe’s advocacy of austerity and the efficacy of Greece’s bailout programs since 2010, but promised a detailed, “concrete” deal would be presented in the next two to three days.

“Unfortunately the U.S. will remain headline-driven until earnings season which (starts) with Alcoa tonight,” Boockvar said. “Today will clearly be bullied around by headlines out of Greece.”

The Federal Open Market Committee (FOMC) minutes at 2 p.m. ET will also be in focus, with traders scanning the Federal Reserve’s June meeting report for hints on interest rate rise timing.

“I think the Fed minutes are something to watch closely,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. But “usually the market doesn’t do much around the minutes until they’re released.”

The Dow Jones Industrial Average (.DJI) traded down 194 points, or 0.99 percent, at 17,583, with Intel leading decliners and Microsoft (MSFT) the only advancer.

The S&P 500 (.SPX) traded down 23 points, or 1.14 percent, at 2,057, with telecommunications leading all 10 sectors lower.

The Nasdaq (.IXIC) traded down 64 points, or 1.31 percent, at 4,931.

The CBOE Volatility Index (VIX) (.VIX), widely considered the best gauge of fear in the market, traded near 18.

About five stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 194 million and a composite volume of 1.22 billion as of 11:30 a.m.

Crude oil futures for August delivery lost 81 cents to $51.52 a barrel on the New York Mercantile Exchange. Gold futures rose $7.50 to $1,160.20 an ounce in morning trade.

Bond yields held lower, with the 10-year yield at 2.23 percent and the 2-year at 0.57 percent. The Treasury auctions $21 billion in 10-year notes this afternoon.

The U.S. dollar fell about half a percent against major world currencies as the euro gained to above $1.10.

Earnings season unofficially begins with aluminium producer Alcoa (AA) reporting after the market close.

Written by Evelyn Cheng of CNBC

(Source: MSN)

Greece’s Banks Are on the Brink as ECB Mulls Next Move

© REUTERS/Yannis Behrakis "No" supporters wave Greek national flags on the main Constitution (Syntagma) square in Athens, Greece July 5, 2015.
© REUTERS/Yannis Behrakis

After Sunday’s landslide “no” result in Greece, the survival of the country’s banks — closed for the past week and with a daily ATM withdrawal limit of €60 per customer — hangs in the balance as the European Central Bank considers its next move.

The ECB’s governing council was due to meet Monday in Frankfurt, Germany, to discuss whether to continue propping up the Mediterranean country’s struggling lenders after Greeks voted 61.3% to 38.7% to reject the terms of a European Union-led bailout to replace the one that expired on June 30.

With the prospect of a Greek exit from the eurozone now very real, that puts the already fragile banking system in even more of a capital crunch, observers warned.

“Bad blood, closed banks and no more bailout,” tweeted ING-DiBa Economist Carsten Brzeski, while Berenberg Bank Chief Economist Holger Schmieding blogged that the absence of an immediate bailout deal makes it “very hard” for the ECB to authorize continuing emergency support for Greek lenders.

The Greek banks most at risk are the country’s largest: National Bank of Greece, Piraeus Bank, Alpha Bank and Eurobank Ergasias. They account for more than 90% of Greek banking assets.

All four had their long- and short-term issuer default ratings, along with their viability ratings, downgraded last week by Fitch Ratings, which warned that they would have defaulted had capital controls not been imposed at the start of the week.

However, shares in the banks rose sharply on Monday, with Alpha Bank closing up almost 13%.

As for how to plug the capital holes, Credit Suisse Group analysts Neville Hill and William Porter suggested three possible courses in a Monday research note: bankruptcy; a recapitalization from the European stability mechanism that would put Greek banks under EU ownership; or, in the case of a ‘Grexit,’ or Greek exit from the eurozone, capitalization by the Bank of Greece. The latter would entail converting all euro contracts into a new currency, meaning that a Greek banking system as such would cease to exist.

For now, the ECB is staying mum on whether to lift its €88.6 billion ($97.7 billion) ceiling on emergency liquidity assistance for Greek lenders, two weeks before another crucial deadline when Greece has to repay €3.5 billion to the ECB.

“Regarding Greece, we currently have no communication planned for today,” an ECB representative said.

Besides the ECB meeting, Sunday’s referendum outcome left politicians scrambling to prevent a major Greek financial meltdown and unprecedented eurozone exit.

EU Council President Donald Tusk spoke by phone earlier in the day with ECB President Mario Draghi and Eurogroup chief Jeroen Djisselbloem, while German Chancellor Angela Merkel and French President François Hollande are due to compare notes over dinner in Paris. Euro-area finance ministers will gather in Brussels on Tuesday afternoon, followed by an evening summit of EU leaders likely to drag on for most of the night.

In a short statement Monday, Djisselbloem called the referendum outcome “very regrettable for the future of Greece,” warning that difficult measures and reforms are inevitable for the economy to recover.

As politicians and monetary policy makers try to figure out what happens next and await a revised bailout proposal from Greek Prime Minister Alexis Tsipras, observers weighed in on the consequences of a Grexit.

“A Greek exit from the common currency would be a financial, economic, social and potentially also political catastrophe for Greece, aggravated by the chaotic way a new currency would have to be introduced,” analysts at the Brussels-based European Policy Centre wrote on Monday.

They added: “Greece would be cut off from international financial markets, with disastrous repercussions for Greek banks and companies, while capital flight and emigration would become endemic … The political system might well be undermined, with potential dire consequences for stability and democracy in Greece, which is already under strain because of the deep split in society.”

Written by Renee Cordes of The Street

(Source: MSN)