FXStreet (Barcelona) – George Saravelos, Strategist at Deutsche Bank, shares the three key possible processes which would appear if the Greece government signs a deal with its creditors.
Key Quotes
“Passage through parliament, with potential opposition support and change in government coalition. This political avenue now seems the most likely as it is the quickest. Parliamentary ratification of an agreement could take place within a few days, with the main source of uncertainty being whether the current ruling coalition remains intact.”
“Out of a 12 MP ruling majority, reports suggest a range of 10-40 MPs expressing strong dissatisfaction with the current state of play. Minister Nikos Pappas, one of the PM’s closest associates, last week explicitly stated that the government would impose a three-line whip on any parliamentary vote, and the Prime Minister would likely attempt to ensure that any agreement is pre-approved by the party’s central committee ahead of a parliamentary vote.”
“With the track record of the current parliamentary majority exceptionally short however, it remains very difficult to assess the odds of parliamentary success. The need for opposition support – possibly in exchange for a change in the government coalition – would seem a likely outcome.”
“Referendum. A successful referendum would provide the Prime Minister with stronger political backing to pass an agreement through parliament, increasing the odds of ruling party support. However, this political avenue would require at least two weeks as well as requiring the prime minister’s implicit backing.”
“Absent such “reluctant support”, it is unclear if the referendum would be a success. It is also unclear whether a referendum could materialize before the end of June, when all IMF payments would be due, and as a result whether European creditors (and the ECB) would be willing to extend the existing program (even without disbursements) under such uncertainty.”
“Early election. A number of senior SYRIZA party officials have over the last few days suggested that an agreement may trigger an early general election. This is likely a means of pre-emptively exerting pressure on ruling party MPs, who in the event of withdrawing support from the government would be unlikely to be included in the party’s new electoral list.”
“An early election would be possible, but the least likely: the PM will likely be able to pass an agreement through parliament with opposition support, in turn generating strong incentives for a shift to a more moderate coalition within the existing parliament rather than a new electoral campaign following a painful compromise with European creditors. This notwithstanding, financial stability under an early election could only be ensured if some disbursements have materialized ahead of time accompanied by ongoing ECB financing of Greek banks. This itself will likely be conditional on passage of an agreement through parliament before a general election is called.”
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