Euro Area: Negotiations on the ESM programme have commenced

Thanks to the €7bn bridge loan agreed last week, Greece paid the ECB bond redemption (€3.5bn) and is no longer in arrears with the IMF. As part of the deal, the Greek government committed to drawing up a first proposal for de-politicising Greek administration under the guidance of the EU Commission and agreed it would seek parliament approval of the Code of Civil Procedure (overhaul of the civil justice system) as well as transposition of the Bank Resolution and Recovery Directive (BRRD) by Wednesday 22 July.

Negotiations on an ESM programme have started with the pending question of the IMF's involvement. The IMF's financial involvement is questionable, given a) its already high exposure to Greece, and b) the IMF's view that Greek debt is unsustainable (and probably needs a debt haircut, which is ruled out by euro area policymakers). The process should take up to at least four weeks. Should PM Tsipras fail to ensure that more than 120 lawmakers back the bill (the minimum required to win a confidence vote), he may have to resign or to offer to lead a unity government. On the data front, the INSEE business confidence index for the French economy is expected to remain below historical average but to improve from 97 to 98 in July, says Societe Generale.