MARKET TRENDS: Greece's Long Fought Battle to End, Dollar Surges High

Greece’s long fought battle with its creditors will soon end with a deal being finalized with the rest of the eurozone countries, subject to an approval by the Athens parliament. The deal, after the approval from the government by Wednesday, would lead to a third bailout for the nearly bankrupt country, and prevent the Greece’s exit from the euro zone.

The deal has been finalized just a week after Greek voters rejected softer terms in a referendum. If the agreement is reached, a discussion will begin toward a new three-year bailout worth up to €86bn (£61bn), accompanied by further monitoring by Greece’s creditors.

The finance ministers have evaluated Greece’s financial needs over the weekend. As per their assessment, Greece would need about €82 bn to €86 bn ($95.5bn) over the next three years, which is significantly higher than the initially reported €74 bn, and around €30 bn more than the €53.5 bn request made by Greece on Thursday for its third bailout package since 2010. Greece already has more than €300 bn in debt.

As compensation for the new bailout, Greece’s Prime Minister, Alexis Tsipras, was forced to approve a list of further strict measures and economic reforms, after more than 16 hours of negotiations in Brussels. The Prime Minister has agreed to pass laws to further reform the tax and pension system, liberalize the labor market, and open up closed professions.

Sunday trading laws will be relaxed, and even milk producers and bakers will be deregulated. Greece has also agreed to accept the involvement of the International Monetary Fund, which was earlier objected by Greek citizens during the country’s previous two bailouts. The other 18 leaders of the eurozone have demanded Greece’s Parliament pass the measures by Wednesday. However, Greece has argued that it would be impossible to pass all of the laws by then, which the eurozone leaders then conceded to. Greece has also managed to persuade the eurozone leaders that the new investment fund, which will manage and sell off €50 bn in Greek assets, will be based in Athens, not Luxembourg.

Greece is the first developed country to default in almost seven decades, and has the largest single overdue payment. Last week, the country defaulted on a 240 bn euro loan, which led to severe consequences for the Greek economy. Greece borrowed from a series of lenders, including the IMF, the European Central Bank and other European governments. The European Financial Stability Facility is the biggest creditor, holding outstanding Greek loans of 144.6 bn euros.

The European Financial Stability Facility helps support eurozone countries in difficulty, and handles the debt owed by Greece to eurozone governments. If unable to repay the debt or finance domestic obligations, Greece’s economy and financial system would collapse. Greek banks are closed, with people having limited access to ATM withdrawals. If the third bailout deal is not approved, or if Greece fails to find a compromise, the country will be unable to pay its bills or reopen its banks, forcing it to become the first country to leave the euro.

The U.S. dollar surged higher with Greece striking a deal. The dollar Index edged higher to 96.69 on Monday when the market opened, up 0.7 from the previous day’s close of 95.99.

Meanwhile, the June U.S. budget deficit remains near a seven-year low amid a strong economic outlook that boosted revenues. The U.S. budget recorded a $52 bn surplus in June, the Treasury Department said on Monday. The surplus represented the government’s corporate and individual taxes collected at the end of the month. The monthly surplus brought the budget deficit over the past 12 months to $431 bn, down nearly 20% from a year earlier.

The 12-month deficit was the lowest since August 2008. Higher revenues and better economic growth has led to a declining budgetary deficit, despite a rise in government spending. Revenue for the 12-month period ending in June was about 9% higher than the previous year, while spending was up 4%.

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