Weekly Risk Outlook

Weekly Risk Outlook

Greece faces IMF repayment deadline. Deadline for Iran nuclear deal approaches. President Rousseff meets with President Obama. Burundi prepares parliamentary elections without opposition participation. Unemployment in the U.S. falls further. All in this Weekly Risk Outlook.

Greece Faces IMF Repayment Deadline

On June 30th, Greece’s current bailout will expire, and the country will be due to make a repayment to the International Monetary Fund on a bundle of loans worth around €1.6 billion.

Talks between Greece and its IMF creditors have been strained for months, with negotiations this week focusing on the IMF’s amendments to the Greek government’s reform proposals.

The amendments were fiercely refused by Prime Minister Tsipras.

Although Germany’s Finance Minister Wolfgang Schäuble seems pessimistic on the matter, it is unlikely that the IMF would take immediate steps against Greece should they fail to repay the loans, as long as reaching a deal remains viable.

On Saturday, Prime Minister Tsipras essentially closed the door to further negotiations with the Eurozone states by calling for a popular referendum on July 5.

This means Greece appears to be on a strong path to at least a technical default on its debts on Tuesday, and will likely be frozen out of further emergency stabilization funds from the European Central Bank.

Deadline for Nuclear Deal with Iran Approaches, May be Extended

The deadline for a decision to be reached on the restriction of Iran’s nuclear program, currently set for June 30th, may be extended by a few days following comments from Iran’s Supreme Leader Ali Khamenei indicating significant disagreements.

The decision to continue talks past the present deadline would largely be the result of Khamenei’s insistence that there be no inspection of military sites and that sanctions be immediately lifted, which has not been well received by the P5+1, which have proposed a progressive relief of sanctions.

The deal will set specific dates for Iran’s sanctions relief once they have taken the required steps to receive this relief, and will put in place a response mechanism to handle violations to the agreement from either side.

This mechanism will have to address how UN sanctions would be re-applied in the event of Iran breaching the agreement, the reduction of Iran’s uranium stock and its future nuclear research.

Taking part in the talks in Vienna this Saturday are US Secretary of State John Kerry, French Foreign Minister Laurent Fabius and Iranian Foreign Minister Mohammad Javad Zarif.

President Rousseff to Meet with President Obama

Starting Monday, President Dilma Rousseff will travel to the United States, visiting New York City, Washington, DC, and Silicon Valley on a cross-country trip.

This trip is the first from Brazil’s president to the United States since revelations that the National Security Agency had bugged President Rousseff’s phone, which she now seems to have forgiven .

On Monday, she will travel to New York City to meet with several Wall Street CEOs to encourage investment in Brazil’s $60 billion infrastructure concession that passed last month in Congress.

Tuesday is a meeting with President Obama, the leaders of the largest democracies in the Americas having the opportunity to discuss a laundry list of matters.

Chief on President Rousseff’s list will likely include the establishment of a double taxation treaty (which the United States has with a number of countries across Europe and Asia) and promoting stronger trade relations. On the top of President Obama’s list will likely be a strong joint climate statement from Brazil and the United States heading into the Paris climate summit.

Both leaders may also discuss biofuels (the two countries produce the vast majority of the world’s biofuels), though recent policy shifts in both countries move in opposite directions; Brazil increased the biofuels requirement for its gasoline from 25% to 27% in March, while the U.S. Environmental Protection Agency’s proposed Renewable Fuel Standard (RFS) will likely be lowered below Congress’s wishes this year.

After meeting with President Obama, President Rousseff will visit Silicon Valley, where she will meet with several high-tech CEOs (Brazil and the United States are engaged in significant airplane and airplane parts trade), and participate in a forum at Stanford University with former Secretary of State Condoleezza Rice.

Burundi Set to Hold Parliamentary Elections without Opposition Participation

On Monday, Burundi is expected to hold parliamentary elections, after the original May 26 election was postponed following significant protests with President Nkurunziza’s announcement that he intends to run for a third term.

Last Friday, opposition parties announced that they would boycott parliamentary elections, which could severely affect the legitimacy of the elections heading into the July 15 presidential election.

The United States has already announced it is withdrawing electoral assistance to Burundi due to a lack of domestic support for the elections to proceed.

UN Secretary General Ban Ki-moon and the UN Security Council have both urged the Burundian government to postpone elections should opposition parties fail to participate, though this did not appear to convince President Nkurunziza or his party.

The fallout from the electoral unrest has been significant. At least 70 people have been killed in Bujumbura and in neighboring towns, and the UN estimates that over 120,000 citizens have fled to neighboring countries in anticipation of possible ethnic strife.

Unemployment in the U.S. Falls Further

On Thursday, the U.S. Department of Labor will release unemployment figures for June.

Economists expect the unemployment rate will fall to 5.4%, with the addition of over 220,000 jobs throughout the month.

Despite the likely uptick in employment, it is uncertain whether this will be sufficient in convincing the Federal Reserve Board to raise U.S. interest rates, with many economists currently expecting a small rise in September.

However, two concerns remain that could lead Federal Reserve Chair Janet Yellen to hold off on a rate hike: the international ramifications of a U.S. rate hike could lead a fragile recovery in a number of countries to falter, and the need for inflation to be at or close to a (unofficial) 2% threshold before proceeding.

The 2% inflation threshold may be a difficult one to overcome; inflation in 2013 and 2014 failed to reach that level, and inflation rates have been at essentially 0 (with 3 months of slight deflation) for the first 5 months of 2015.

The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes. 

The Weekly Risk Outlook is written by GRI analyst Brian Daigle.


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