Greek drama weighs on Europe

European stock markets are putting in a slightly muted performance on Friday June 12th, despite looking set to record their best weekly gains since April. A startling turn of events in the Greek debt saga came late on Thursday and pressured European stocks and the euro lower today.

Germany’s DAX edged lower by nearly 0.1 per cent, the French CAC 40 slipped some 0.2 per cent and the Euro Stoxx 50 index ranged just below neutral. The FTSE-100 was almost 0.3 per cent in the red.

In a surprise move, the International Monetary Fund (IMF) withdrew its negotiators from talks with Greece on Thursday, accusing them of refusing to compromise over key labour market and pension reforms. These issues have held negotiations in deadlock for weeks now and it seemed that yesterday’s meeting was the last straw.

“The ball is very much in Greece’s court,” IMF spokesman Gerry Rice said. “There are major differences between us in most key areas. There has been no progress in narrowing these differences recently.”

The news dragged the euro lower on both Thursday and Friday, with EUR/USD down nearly 0.7 per cent today. However, the euro looked set to retain a lead of around one per cent versus the dollar over the course of the week. Despite this, experts suggest that the long-term outlook for the single currency is not so positive. 

“The reality remains that without some sort of agreement Greece is not going to get through the summer without some sort of default whether that be a non-payment to the IMF, ECB or other creditors,” said Angus Campbell, senior analyst at FxPro. “If this remains the scenario it is hard to see much upside to the euro in the coming weeks.”

Meanwhile, upward revisions to UK GDP figures boosted the pound. A report from the Office for National Statistics showed that the British economy grew more than previously thought in 2014 and the first quarter of 2015, which sent sterling to a ten-day high against the faltering euro.