BarroMetrics Views: Grexit - A Reality
So the Greeks called a referendum on July 5. So what?
On June 30 the IMF payment will have fallen due. Now, it’s true that the IMF can give a 30-day grace period on repayment. So theoretically, if a grace period is extended, there is still enough time to pass a bailout package IF the Greek vote is a ‘yes’. But, in the current climate, I can’t see the extension being granted. It’s quite clear to me that Germany has come to the end of its bailout rope, and without German support, no bailout is possible.
So, what now?
The first thing is the ECB will stop supporting the Greek Banks. In turn this will mean two things:
- Capital controls in Greece
- The reintroduction of the drachma (or its equivalent). Once Greece runs out of Euros, it has to pay its obligations in some currency.
- Greece leaving the Eurozone. After all, we can’t have a member within the zone defaulting, can we?
I expect to see a knee-jerk reaction up for the USD and down for stocks (I am seeing this as I write). But, I doubt if a Greece exit will cause severe market dislocation in the short-term. In the long-term, we have an entire different ballgame.