FXStreet (Bali) – According to Michala Marcussen, Global Head of Economics at Societe Generale, it seems unlikely that Greece can escape capital controls, adding that once in place – now confirmed – , these will take time to lift.
Key Quotes
“In an announcement Sunday, the ECB said that it would work closely with the National Bank of Greece to maintain financial stability and will maintain the ELA at Friday’s level (€89bn). Over a weekend, where press have been reporting long queues in front of ATM machines in Greece, the decision to cap the ELA for now makes bank holidays and capital controls much more likely.”
“At the same time, the ECB noted that it stands ready to reconsider its decision. At this stage, the ECB made no comment on its position with regards to Greek banks’ holdings of T-bills. Last week, Bundesbank Governor Weidmann raised concern that “banks receiving ELA should be urged to do their utmost to improve their liquidity situation and be prevented from worsening it by rolling over illiquid T-bills of their sovereigns”. “
“We discuss the two alternative outcomes for Greece below, with the key point being that even in a best case scenario; it will take considerable time to put in place. It thus seems unlikely that Greece can escape capital controls. Once in place, these will take time to lift; in the case of Cyprus, it took two years.”
“Referendum “accepts” bailout terms: A vote to “accept” the bailout programme would be a vote against the position recommended by the Greek government. It thus seems likely that Prime Minister Tsipras would be forced to resign and call new elections in such a scenario. Currently, however, opinion polls show him still poised to hold on to his current majority in an election. In light of the comments from the Eurogroup President (cf. above) it seems likely that finding agreement with a government that recommended a negative vote in the referendum will be politically challenging, to say the least. The Eurogroup would require very strong reassurances to proceed with an agreement in such a scenario.”
“Referendum “rejects” bailout terms: A “reject” vote at the referendum would likely mark a first step towards Grexit as there is no indication that the Troika stands ready to offer Greece a better deal. In a Grexit scenario, Greece would still required assistance from its European partners, not least from the ECB in maintaining financial stability in a transition. Moreover, the country would most likely need humanitarian help in what is likely to prove a bleak near-term economic outlook.”
“Our initial estimate was that Greece would need an additional €60-80bn of bailout over the next three years. The deterioration of the economic outlook, places the risk to this range firmly on the upside. As such, our view remains that any agreement will only be semi-stable, leaving the risk of a future default still significant.”
(Market News Provided by FXstreet)