Greece referendum alternatives, Greek default likely – SG

FXStreet (Barcelona) – Global Head of Economics at Societe Generale, Michala Marcussen, discusses the two alternative outcomes for the Greece Referendum, with the key point being that even in a best case scenario; it will take considerable time to put in place.

Key Quotes

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 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.”

“We nonetheless believe that an attempt to agree a new third economic adjustment programme for Greece would be made. It will not be an overnight process, however. Moreover, it would be politically very challenging for Germany to accept a package that does not involve the IMF.”

“Given the timelines involved, it seems likely that Greece will not only default on the IMF end-June, but also on the ECB on 20 July.”

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 such a scenario, there is the risk that the pro-European President Pavlopoulos opts to resign.”

“The President has previously threatened to resign in the event of Grexit. Parliament would then have to choose a new president. Voting for a new president takes place over a maximum of three rounds with an interval of no more than 5 days. To win, a candidate must either secure 200 out of the 300 seats in one of the first two rounds or 180 in the third round. If this cannot be secured, then a general election must be held. Once a new parliament is in place, the next phase of the election a new president can begin. In the then fourth round of voting, a majority of 180 is required to elect a president, this drops to 151 in the fifth round and the sixth round is a simple majority between the two candidates with the most votes. Given that 178 voted in favour of the referendum and 120 against, it is a close call whether a new president could be elected without a new general election.”

“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.”

Global Head of Economics at Societe Generale, Michala Marcussen, discusses the two alternative outcomes for the Greece Referendum, with the key point being that even in a best case scenario; it will take considerable time to put in place.

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