Greece: Grimbo or Grexit?

WE BELIEVE recent events have significantly increased the risk of Grexit, even if Grexit is still not our base case. We have previously highlighted the possibility of an extended period of "Greece in limbo" ("Grimbo") ahead of, or instead of, Grexit. This note considers the mechanics of Grimbo and Grexit, and their implications for the economy and markets.

We define Grexit as the Greek government passing and implementing a currency law (lex monetae) creating a new currency (for example, the New Drachma, or ND) and stipulating the official initial conversion rates between the new currency and the euro.

The currency law would likely specify that the new currency is legal tender for payment and settlement of debt and other contracts in Greece, including for bank loans, deposits, wages, and pensions.