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WHAT WILL HAPPEN NEXT IN THE GREEK EPIC? SPOILERS AHEAD!

WHAT WILL HAPPEN NEXT IN THE GREEK EPIC? SPOILERS AHEAD!

Late on Friday night, Greek Prime Minister Alexis Tsipras surprised the markets by announcing a referendum on the Greek bailout negotiations. In a speech that was broadcast live on Greek television, he announced that the referendum would be held on July 5th.

Press reports indicate that the Prime Minister promised to abide by the results of the referendum, even as he argued against the terms demanded by Greece’s creditors and asked Greek citizens to say no to more austerity. He also said that he would ask the Institutions to extend the bailout program by a week. Other press reports suggest that they had not been informed of the Greek Prime Minister’s plans, and presumably had no chance to weigh in or consent. In other words, the ECB, which is keeping the Greek banking system afloat through the Emergency Liquidity Assistance (ELA) as long as negotiations are continuing, had no idea this was coming.

This continued over Saturday and Sunday when the European Central Bank said it will not increase its emergency funding for Greek banks, nor will it extend the existing bailout beyond Tuesday. Greece has now announced a week long bank holiday, closing its banks and imposing capital controls after large outflows over the weekend. The measures limit daily cash withdrawals to EUR 60 and bans payments and transfers abroad.

The saga of the Greek debt crisis could probably give Eastenders a run for its money in terms of its repetitive script and Game of Thrones a run for its money in terms of its global impact. We may well be in the final few episodes of this saga. Although we are not privy to the script, please find below some answers to the most common questions…spoiler alert!

1)  What on earth is the Greek prime minister playing at – surely it’s a stunt?

If it is a stunt, it could be designed to force the hands of the lending institutions to agree completely to the Greek government’s final proposal. This could then conceivably allow the Greek government to walk away from the referendum announcement. However, such a public climb-down on the part of the Institutions seems extremely unlikely.

2) Will the Greek government be able to make the June 30th payment to the IMF?

Almost certainly not. It is hard to see how there will be any agreement or aid disbursed in time for the June 30th deadline. We believe the Greek government will miss the deadline.

3) What will be the question asked in the referendum?

The Prime Minister seemed to suggest that the question would be a simple yes/no on whether Greek citizens wanted to accept the creditors’ proposals. It seems unlikely that the question will include any discussion of the consequences if Greece votes no.

4) What happens if Greece votes no?

Government officials are currently emphasizing that this is simply a vote on the negotiations and not on the Greek position within the EMU and EU. In reality, the two questions are related. We believe that the odds of a Greek exit increase substantially if Greece votes no. And if capital controls have not been imposed by then, they would almost certainly be after July 5th.

5) What happens if Greece votes yes?

Every indication is that the existing Greek government is opposed to the creditors’ current terms. Consequently, it is very possible that in the event of a yes vote, Greece would face a political crisis, with a new government having to be formed in order to finalize the negotiations and implement the agreed-upon reforms.

6) How will financial markets react today?

We have emphasized in the past that the systemic implications of capital controls being imposed in Greece are limited, given the ring-fencing measures put in place by the ECB and Eurozone governments. However, imposing capital controls has long been predicted to be the first step technical step towards a default and a Grexit…

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