FXStreet (Barcelona) – The TD Securities Team shares their observations on the Greece referendum, Grexit odds, key event risks ahead, and further add that the Hellenic Republic will have to move to a broader, unity government in order to appease the creditors for a deal.
Key Quotes
“The rolling 48 hour deadlines make it difficult to trade with any medium-term view, but Greece itself is showing limited signs of contagion. It is an evolving humanitarian crisis within Greece as the resources and institutions are not available to meet the social needs in any quick fashion, but for global markets, Greece remains a distraction.”
“We think the initial market reaction to assume Grexit is a fait accompli is an overreaction. The odds have significantly increased—we put them at 45%—and is the single most likely outcome. But we also see a 30% chance leaders come to a broader compromise deal this week and a further 25% chance that even if no deal is reached, this sees the Greek government fail a no confidence motion and bring in a new regime that works to avoid Grexit.”
“The news flow overnight continues to support our view as most European leaders have backed down from last week’s dire tone. Senior officials from France, Italy, Spain, Belgium, and Luxembourg, among others, have now all been on the wires suggesting that negotiations should continue. The official German government response has been more muted but still open, though the opposition from within Merkel’s party in the Bundestag has been clear. All have agreed that Greece must make the first step by providing a proposal, which is now expected by Tuesday morning. Eurogroup will see FinMins meet at 7am EDT on Tuesday followed by the Eurozone Leaders Summit at noon.”
“Greek FinMin Varoufakis has resigned, which has generally been in the cards since he was largely sidelined when the Greek negotiating team was reshuffled in April, and while a positive gesture, we think Greece is still likely going to need to move to a broader, unity government in order to provide stability that creditors will likely demand for any deal.”
“The bulk of the previous austerity demands will continue to be included in any proposal, and we think the only negotiated way forward now must include bank recapitalizations and debt rescheduling, with the latter potentially effectively buying out the IMF’s stake in the existing program. But if Greece is unwilling to agree to this, it seems likely European leaders would be unwilling to compromise further.”
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