FXStreet (Barcelona) – The Greece Referendum ‘No’ majority vote marks a big victory for Greek PM Tsipras, but also raises the probability of uncertainty of the Greek crisis ahead, according to Darren Gibbs, Chief Economist at Deutsche Bank.
Key Quotes
“The preliminary count from Sunday’s referendum has given the “No” campaign a clear win with 61.3% support – a far more decisive result than polls had suggested. So what happens now.”
“The result marks a big political victory for PM Alexis Tsipras, allowing him to maintain the political initiative within Greece (at least for a while – a deteriorating economy will present challenges for Tsipras, however). That said, the result masks a deeply divided electoral body. Opinion polls over the last few days have continued to show an overwhelming support for euro membership. How this can be reconciled with the “no” vote and rising economic costs remains to be seen in coming days.”
“The referendum now requires Europe to more formally adopt a position on Greece. The European message on whether rejection is equivalent to Eurozone exit has not been consistent.”
“The focus will shift back to the European response. Most imminently, Greek bank ELA liquidity is likely to be fully exhausted over the next few days, leading to an exhaustion of ATM cash reserves as well as an inability to finance imported goods via outgoing payments. The ECB is scheduled to meet first thing today to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. Given how this would escalate the crisis, George thinks that the maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. A Reuters report, citing the usual “people familiar with the matter”, supports George’s view.”
“On the political front, focus will now shift to whether the damaged relationship between Greece and Europe’s creditors can be repaired and the immediate prospect of a resumption in negotiations. PM Tsipras has committed to fly to Brussels today to continue negotiations. The Eurogroup is formally responsible for initiating the process, but a meeting has not yet been confirmed. The European Commission’s Juncker will hold a conference call today with EU President Donald Tusk, ECB President Mario Draghi and Eurogroup President Jeroen Dijsselbloem. Angela Merkel and Francois Hollande will meet today and Tusk has called for a European leaders’ summit at 6pm Brussels time on Tuesday.”
“Europe will need to decide whether this process can be initiated and under what conditions. It is possible that the start of talks is accepted, but making it clear that the framework of an agreement remains similar to the prior EFSF programme – a programme that Greece has rejected. This would put pressure back on the Greek government which in any case is faced with the pressure from a rapidly deteriorating economy.”
“An ESM program requires prior ECB/IMF assessment of financing needs/debt sustainability as well as Bundestag parliamentary approval before talks around a staff-level agreement can begin. It is important to note that any terms of a new third ESM program are likely to require even greater fiscal commitments given the deterioration on the ground. And European commitment to the process has also been weakened over the last few months. This will make negotiations overall more difficult. On the other hand, the creditors may be willing to provide more upfront clarity on potential conditional debt relief in the context of a fresh program.”
“..the range and probability of unpredictable outcomes to the Greek crisis has again materially increased.”
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