World Economy

Greece Destiny Uncertain

Greece Destiny UncertainGreece Destiny Uncertain

Eurozone leaders will attend an emergency summit on Monday, hoping to thrash out a plan with Athens to provide Greece with additional funds to prevent it defaulting on its debt–but only if both sides play ball.

With the outcome uncertain, markets will also be looking at data due on Tuesday for clues as to how the global economy rounded off the first half, with business surveys expected to show modest growth in China, the eurozone and the United States, Reuters reported.

If Greece does default on its debts, which remains a real possibility, it could require capital controls that would potentially turf it out of the eurozone or even the European Union itself, becoming the first country ever to leave the bloc.

  No Cash

Athens said last week it did not have the cash to repay an International Monetary Fund loan so Greek Prime Minister Alexis Tsipras only has until the end of the month to strike a deal with creditors.

“We’ve had deadlines and more deadlines, and none of them actually turned out to be final, but now we’re approaching what is going to be a final deadline,” said Sonja Marten, FX strategist at DZ Bank in Frankfurt.

IMF boss Christine Lagarde closed one of Tsipras’ last potential escape hatches on Thursday, declaring the global lender would consider Athens in default if it misses the June payment, despite some reports there might be some leeway.

  Banks Concerned

Voted into power in January on a pledge to roll back austerity amid mass unemployment and an economy in freefall, Tsipras’ government has so far balked at demands from creditors for new pension cuts and tax hikes on basic goods like food and electricity.

“There are dim hopes amidst an active rumor mill that on balance continues to portray both Greek PM Alexis Tsipras and his main banker German Chancellor Angela Merkel as uncompromising,” said Derek Holt at Scotiabank.

Merkel faces growing opposition from within her ruling conservatives to granting Greece any more bailout money, with a recent opinion poll showing a narrow majority of Germans now in favor of Greece leaving the currency union.

  Modest Growth

Among the first major gauges of private sector economic activity each month, flash readings of Markit’s Purchasing Managers’ Indexes on Tuesday will likely suggest the global economy ended the first half in a fragile state.

The composite PMI for the eurozone is expected to show only modest growth in the 19-nation currency bloc.

Weak growth will be disappointing for the European Central Bank, just a few months after it embarked on a trillion-euro quantitative easing program to try to fuel inflation.

Similarly, China’s PMI is expected to show its vast manufacturing industry contracted for a fourth month.

China for many years was a principal driver of global growth but economists remain cautious about the outlook. The People’s Bank of China has already cut benchmark interest rates three times in the past six months, on top of reductions in banks’ reserve requirements and measures to shore up the ailing property market.

In contrast, markets are focusing on when the US Federal Reserve raises interest rates for the first time in nearly a decade. It is currently expected to move in September.

Japan’s central bank has spent trillions of yen and years fighting deflation yet the country is still to see any meaningful price rises. Data on Friday are likely to show inflation stuck at zero.