Greece’s debt woe and volatility in the euro

The negotiations between Greece and the Eurozone are not progressing especially well. The Eurogroup meeting of Eurozone finance ministers on Friday ended rather acrimoniously with officials accusing Yanis Varoufakis (Greek finance minister) of backtracking on commitments and not being constructive towards the process of coming to an agreement. The situation is becoming a serious concern now as the apparent brinkmanship of Greece is preventing the release of at least some of the remaining €7.2bn of the bailout programme. If this continues, it means that Greece could now be pushing towards a default as early as the middle of May. The talks are set to resume again today.


The timetable of payments that Greece faces in the next few weeks could therefore generate significant volatility in the value of the euro. In May alone, there is around €3.8bn of repayments due, with €2.8bn of treasury bills maturing, and the rest payable to the IMF in the form of interest and loan repayments.

How much does Greece owe in the next few months? The graphic below lays it all out.

greek debt

Source: Oxford Economics, UBS

This would all suggest that it is vital for Greece to secure the €7.2bn of bailout money to remain solvent for at least the next couple of months. However with almost €22bn up to the end of August, it is unlikely that even if they do reach an agreement in the coming days, it is unlikely that it will be the end of the arguments. Greece remains on the brink of default. This will help to drive volatility on the euro in the coming months (and that is before you consider the impact of a potential tightening by the Federal Reserve at some stage in the second half of the year). Apparently there is increasingly a desire amongst the Eurogroup ministers to have a “Plan B” should the negotiations continue to break down. That does not bode well for a steady solution to this situation.

The dates when the debt repayments are due could drive significant volatility, but so could the dates of upcoming debt auctions by Greece. The dates for these auctions of 26 week bills could prove to be significant drivers of market confidence in the ability of the Greece government to successfully negotiate the release of the bailout funds and also the ability to repay its debts. The debt auctions come on 6th May, 10th June and 8th July. With the threat of a Greek default the government bond yield curve has become steeply inverted implying a significant risk of default on near term debt.

GR yield

This could all mean that the euro will experience some significant volatility in the next few months. As the lack of agreement rumbles on without the release of funds to Grecee, forex traders will need to be aware of this when taking short and medium term positions around the key dates of these debt repayments.

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