A summary of the events that took place in Greece, and the specters of Uncertainty and Contagion about to be unleashed, was given by Slovakia’s finance minister Peter Kazimir in a series of tweets:
“The nightmare of the ‘euro-architects’ that a country could leave the club seems like a realistic scenario after #Greece voted No today. We will not go gently into this good night. We stand united and we need to respond to this situation as soon as possible”
The now confirmed “No” vote means that the Greek people will not accept the current “additional austerity for more high-interest debt” deal, which would have been completely unexpected if you had only relied on mainstream fodder. This has brought some cretins out of the woodwork; JP Morgans’s Malcom Barr states that the bank’s latest take on Greece is that a Grexit is JPM’s “base case”… and it only goes downhill from there:
“Hollande and Merkel are to meet tomorrow night to discuss the issue, and as we understand it, the Eurogroup is scheduled to meet on Tuesday. We expect that a split is likely to emerge in the coming days….. Others will find it more difficult to return to negotiations with a newly emboldened Tsipras in short order….
Second, there are reports of an emergency meeting between the ECB, Bank of Greece and Finance Ministry tonight, and at the latest the ECB will likely have to take a decision about ELA support tomorrow (if not tonight)….It is extremely difficult for the ECB to justify increasing the region’s exposure to Greece at this point….
This suggests that what we see next will be a race between two forces: political pressure to move toward an agreement despite resistance from a number of northern European parliaments, versus the increasingly unpleasant implications of a dysfunctional banking system on the other.
Our base case is that the pressures coming from a dysfunctional banking system in Greece will shorten the time horizon to negotiate a deal to a handful of weeks.
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