The day of reckoning has finally come for Greece. The country has lived beyond its means for some time, and regardless of creditor’s role in the tragedy, the citizens of the country must ultimately make the decisions regarding the future direction of the nation and live with the consequences of that decision.
The term Grexit was coined a couple of years ago, but over the weekend it became one of the most-searched terms on the web as people across the globe struggled to understand why it had come to this.
Wall Street analysts offering perspective
Several Wall Street analysts have chimed over the last couple of days with their take on Greece. Several also updated their odds on a Grexit, including Morgan Stanley’s Daniele Antonucci and Elga Bartsch who upped their probability of Greece leaving the EU from 45% to 60%.
The analysts also offer a cogent assessment of how politics has been the major stumbling block preventing the Greeks and the “Troika”, and how market forces are in effect pushing Syriza from power. They note: “Staying in the currency union, being in power and not doing what it takes to keep euro membership has proven to be an ‘impossible trinity’ for Syriza. As these goals are inconsistent, one of these three has to give. So, to be reassured of a higher probability that Greece stays in the euro, markets may need to see a shift from far-left towards more centrist, pro-market policies.”
A June 29th report from Barclay’s offers a somewhat optimistic perspective. They argue: “…developments over the weekend have heightened the risk of an eventual Greek default and exit from the euro. Initially, this news is unlikely to be taken well by European equity markets. However, we think that the current crisis – whatever the outcome – will probably not damage the longer-term prospects for European equities.”
The Barclays analysts did not change their year-end target of 4,000 for the Euro STOXX 50 index, nor their recommended overweight position for Europe ex-UK. They point out that since the ECB QE began, Euro equities have “de-coupled from developments in the Greek stock market”.
Ian Scott and team admit the possibility for a near-term reversal of this pattern, but argue the fundamental support coming from the EU’s ongoing economic recovery should win out over the medium term.
Finally, they suggest Southern Europe is no longer as vulnerable to a Grexit: “Opinion polls indicate the importance of economic conditions to public attitudes towards the EU, and the economic recovery in the Euro Area has prompted a turnaround in attitudes towards EU membership in Portugal, Spain, Ireland and Italy. Greece remains an outlier in this respect, and so the contagion effects of a Greek exit may not last long – provided the Euro Area economy continues its recovery path.”
RBS says a deal is still very possible with “yes” on referendum
Alberto Gallo of RBS says that with a “yes” vote in the referendum, a deal with the Eurogroup troika can still happen. According to a recent Alco/Kapa survey, the yes vote is actually more likely, with 57% of respondents saying they want a deal with Europe. Moreover, the ECB answer to a yes vote would be positive, likely extending or potentially increasing ELA.
Most likely, the Eurogroup will decide to bring back its previous proposal (officially withdrawn). There is also some probability that creditors may play hardball and not re-present the proposal, pushing the government to face the consequences of its action. Tsipras and Syriza is backing a “No”, which means that SYRIZA may have to face a confidence vote and/or set up a new alliance with a yes vote, or even end up forming a unity government.
Wilbur Ross says Greece could face social unrest
“Once there’s social unrest, which there will be before too long if this thing continues, no tourist is going to want to go to [Greece],” Ross told CNBC’s ” Squawk Box ” in an interview on Monday. “If the Greek people understand how limited those concessions that are requested are, and contemplate going into the abyss on other side, they’re never going to pick the abyss.”