While a narrow victory for the ‘Yes’ vote in the Greek bailout referendum Sunday appears likely, the week is ending with a nearly 8% decline in the Global X FTSE Greece 20 ETF (GREK).
Greek bank stocks sank like stones this week. The most liquid among them, the National Bank of Greece (NBG), fell nearly 12%. Trading was halted on three Greek banks that trade over the counter in the U.S. Based on the last quote, Alpha Bank (ALBKY) fell 32% for the week, Eurobank Ergasias (EGFEY) tumbled 25% and Piraeus Bank (BPIRY) was down 26%, according to FactSet.
As of Thursday morning, a Barclays poll gave the Yes vote a 66% chance. Sunday’s voting ends at 7 p.m. Athens time and results are expected to trickle out an hour later (or 1 p.m. EST). Here are thoughts from three investing sources on the referendum outcome:
SGH Macro Advisors: “The headline that really caught our attention was Finance MinisterYanis Varoufakis’ threat to resign if the country votes “Yes” on Sunday. It is very hard to imagine a “threat” that would galvanize and cheer the YES camp more than that … A yes outcome after Prime Minister Alexis Tsipras campaigned so hard for a no vote will certainly leave him severely damaged politically. But we suspect he will survive and soon be limping his way back to Brussels.”
Deutsche Bank: “A “yes” vote would be significantly more likely to lead to a quicker agreement with the creditors, but not without risks. A “no” vote opens a wider range of possibilities ...In the event of a “yes” vote, negotiations are likely to immediately resume the following day. Focus will first turn to the ECB and a potential increase in the ELA [Emergency Liquidity Assistance] ceiling to provide more room to the Greek banking system. … Press reports that Greek bank liquidity (versus the ELA cap) stood at a little below EUR2 billion ($2.2 billion) last weekend, with this having fallen to around EUR 800 million ($886.5 million) [as of early Thursday]. Continued deposit withdrawals are likely to lead to an exhaustion of this limit by this coming weekend. … A change may not be immediate, likely depending on political developments over the course of the week. On that front, both the PM and finance minister in interviews this week have stated that in the event of a “yes”, an agreement will be immediately signed. This may not be possible however. A complete new ESM programme [European Stability Mechanism] with IMF involvement will need to be negotiated, including commitments on fiscal consolidation and structural reforms; a fresh bank recapitalization program; a financing package with a disbursement schedule; and potential debt relief. This is likely to take at least a week of intense negotiations.”
Morgan Stanley: “European Central Bank support gives a positive skew to Greek referendum scenarios and should help to refocus markets on reflation. But don’t be quick to dismiss the long-term risk of a Greek exit. … A ‘No could drive domestic uncertainty but also the most market-friendly response from the ECB. … A ‘yes’ …reduces the risk of a Grexit, but not materially, to about 55%. The Greek government will have to shift policy to compromise, because the creditors can’t negotiate with a government that has campaigned for ‘no.’ So, the legitimacy of the Greek government would be called into question, possibly triggering a call for new elections after 30 days, especially if it’s a strong ‘yes.’
… What if it’s a ‘No’? This would probably make Greece slide towards euro exit, maybe not right away but over time. In this case, we would raise our subjective probability of Grexit to around 75%. In this scenario, Syriza may claim that the ‘no austerity’ vote won. At the same time, the Greek government will have to make capital controls more stringent, and start issuing IOUs after some time: with no money left, and having already defaulted on the IMF repayment, it could only pay wages, pensions, etc. by distributing ‘promises to pay’. What happens then is that the Greek government may default on the Greek bonds held by the ECB on July 20. The importance of repaying the ECB: This is crucial because the EU Treaty says that the bank can’t monetise government debt.”
Here are the ballot documents that Greeks — not all of whom speak English — will be voting on. See our recent posts on the Greek referendum:
“Varoufakis: 6 Reasons Greeks Can Avoid Grexit & Vote No“ and “3 Experts On Sunday’s Greek Bailout Referendum.”