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Quick Takes: Greferendum - what the 'no' vote means

Monday, July 6, 2015 - 10:48
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Now that 61 per cent of Greek voters have backed Prime Minister Alexis Tsipras's rejection of creditors' bailout terms, economists weigh in on what the "no" vote means from here.

NOW that 61 per cent of Greek voters have backed Prime Minister Alexis Tsipras's rejection of creditors' bailout terms, economists weigh in on what the "no" vote means from here.

Said Mizuho economist Vishnu Varathan: "Unsurprisingly, markets recoiled into 'risk off' mode. The line between the Greferendum rejection and outright Grief-erendum outcome will be determined by whether Greece spirals towards Grexit rapidly.

"The takeaway was that the 'no' vote was not an automatic exit for Greece. But equally, it will be foolish to expect non-abrasive discussions and quick resolution to follow."

The team at DBS Group Research agree, and believe that while it was "quick and easy for the Greeks to vote 'no' yesterday, what comes next will be neither".

They added: "Greece owes some US$280 billion (140 per cent of GDP) to the rest of the world and probably half of it is never going to be repaid whether Greece stays in the euro or not. Surely it's better to realise and accept this upfront than to force a Grexit with all the messy consequences - economic and, perhaps more importantly, political.

"It's a no-brainer but for one thing: precedence. If Europe forgives half of Greece's debt, isn't it obliged to forgive Spain half of its? And Portugal half of its? Ireland? Italy? The answer is yes, it probably is so obliged. Whether it does or not is another question."

Still, ING now sees the increased probability of Grexit, which, according to the bank's Padhraic Garvey, has moved above 50 per cent for the first time.

Bank of Singapore's Richard Jerram expects contagion to be limited, however: "A short-term risk off move seems likely, but this should be limited. Spreads on peripheral Eurozone bonds will be a key indicator - so far they have been calm.

"People can be quick to talk of another 'Lehman shock', but Lehman was a highly-leveraged firm involved in deeply-complex financial instruments. Greece will mainly be defaulting on sovereign debt to multilateral institutions. Potentially this is very painful for the Greek economy, but it should not be too disruptive for the global financial system."

Added OCBC's Treasury Research team: "Financial markets are likely to be in limbo again as market players ponder what's next in the Greek end-game. With the European Central Bank's upcoming emergency liquidity assistance decision being the key standing between a potential banking crisis and depression for the Greek economy, the growth outlook for the eurozone region also appears to be likely impacted by weakening business sentiment in the interim.

"However, we do view any further sell-offs in European markets as a potential tactical buying opportunity, assuming that Grexit remains an outlier - albeit increasing - risk."

Read more on the Greek crisis here

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