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Global Energy Advisory – 26th June 2015

Politics, Geopolitics & Conflict

Greece on the Brink

The back and forth between Europe and Greece over the past few weeks is reaching its denouement. Earlier this week it appeared as if Greece and its European overlords – EU member states led by Germany, the European Central Bank, and the International Monetary Fund – were close to a deal. But in the last few hours things have taken a gloomy turn.

After several days in which many insiders and analysts insisted that a deal was “very close,” they have failed to find common ground. And in the last 24 hours, it appears that Europe has toughened its stance, rejecting Greece’s latest counteroffers. Europe is demanding deeper cuts to pensions, a faster raise of the retirement age, removal of subsidies for farmers, among other austerity measures. The demands can only be interpreted as an ultimatum just a few days before Greece has to meet a $1.7 billion debt payment to the IMF – Greece has to either agree to Europe’s terms or blow past the deadline for repayment, likely triggering a default, bank failures, and potentially an exit from the Eurozone currency union.

Complicating matters further is the fact that even if Greek Prime Minister Alexis Tsipras agrees to Europe’s demands, he has to sell the package to his parliament and public back home. Elected on an anti-austerity platform, he would have to agree to significant austerity policies if Greece is to avoid default. That won’t be popular.

German Chancellor Angela Merkel struck a dour note after the negotiations failed on Thursday, telling reporters that “[w]e still haven't made the necessary progress; in some places it looks like we're even going backwards.” Talks will resume on Saturday, but the clock is running out. Merkel has said a deal must be reached before financial markets open on Monday.

China’s Bear Market

China has been the main driver of global economic growth for much of the last decade. But cracks are forming in the Chinese economy that are raising concerns across the world. China’s main stock exchange, the Shanghai Composite Index, fell the most in five months this week, dropping 7.4 percent. That brings the exchange down 19 percent from its peak earlier this year. China’s stock exchange suffered its worst two-week performance in nearly two decades.

Investment firm Morgan Stanley is now advising investors to steer…




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