Bottom Line: Thanos talks us through, very simply, the scenario of a YES vs. NO vote at this weekend’s referendum. He sees virtually no chance that the referendum will be cancelled. Government messages have been confrontational and confusing, trying to pin as much blame on the creditors. The referendum question itself is highly complex. Thanos believes the main driver of the result is likely to be how scared the public are after the closure of banks – more fear should increase the YES vote. If the Greek public vote “Yes”, a new government will likely need to be formed, which doesn’t look easy within the current parliament. However, in this scenario, they will most likely remain in the Euro, but restoring economic stability will be challenging. In the scenario of a NO vote, we would not expect the creditors to change their proposal for the adjustment programme in response, which would be hugely negative.
YES VOTE: We would expect a Yes vote to lead to substantial political uncertainty that may take time to be resolved
· We do not see how the current government can implement a programme while campaigning against it in the referendum.
· A new government will likely need to be formed, which does not look easy within the current parliament. It will only be possible if a substantial number of Syriza parliamentarians split from their party: With a “pro programme” arc (ND, Potami, Pasok) holding only 106 seats, 45 MPs from Syriza/Anel would have to be found.
· Beyond the technical issues of whether or not general elections could be organized in the middle of the summer, a potential “political void” will keep the country in limbo. Syriza remains ahead in the polls. However, the opposition parties could decide to run together, to improve their chances.
· By the time Greece has put together a government that can approve and implement an adjustment programme, the country would have missed both the IMF and the ECB payments and the economy will be in a much worse shape.
· From the Europeans’ point of view, their firmness and the ensuing referendum, if won, could be a way to get to the “best of worlds”, with the adjustment programme and monetary union clearly sanctioned by the Greek people and eventually a new, pro-Europe government.
· Greece will most likely remain in the Euro in this case, but restoring economic stability will be challenging.
NO VOTE: A No vote could increase uncertainty even more. In light of their firmness right now, we would not expect the creditors to change their proposal for the adjustment programme in response.
· Without new official funding, Greece will enter uncharted territory.
· Default to the IMF and the ECB will increase Grexit risks substantially.
· An economy without banks, without lender of last resort, without any access to liquidity and with substantial uncertainty of what comes next will go into a deep recession.
· The most negative scenarios could include social unrest and geopolitical risks.
Below is the exact phrasing of the GReferendum Question. It is phrased in a rather complex way. At the margin a complex question should encourage some "on the fence" voters to vote NO. Additionally, please note that NO is the first choice of the two as well, also a positive for NO, at the margin.
“Do you think that we should accept the framework for an agreement that has been proposed by the European Commission, the European Central Bank, and the International Monetary Fund in the Eurogroup of 25/6/2015 and includes two parts that represent their common proposal? The first part has the title "Reforms for the completion of the current program and beyond" and the second part " Preliminary debt sustainability analysis."
Not approved/No:
Approved/Yes:
GREECE: YES vs. NO Scenarios