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The Next act in EU Drama

As summer vacations are finishing this week for Merkel, we need to say goodbye to the recent “Neins”-free period and face reality again. With the EU leaders squabbling over measures (including bond purchase) to relieve worries over the single currency, with Greek problems nowhere on the front pages for over a month (but far from fixed) and with the German high court decision on bailout funding coming out next month there are two factors worth considering: on the one hand is the lack of impetus of soon to be bailed out governments to act if they are bailed out (it is no surprise that once you take away the pressure from the market, you eliminate the pressure on politicians to act as well) and on the other hand is the possibility of a German referendum, that would put the commitments of the euro area’s biggest economy in the hand of the voters at a time of increasing discontent with the cost of the crisis. With Greece having gained time (once again) by finding a solution to the upcoming government bond redemption on 20th August (effectively through monetary financing of the government’s funding via the ECB), the focus shifts to early September, when the Troika team returns to Athens to finalise the details of spending cuts.
Dafni Serdari
Market Analyst

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