Morgan Stanley On What Happens Next In Greece, And Why It Is All Very Euro Negative

Tyler Durden's picture

From Morgan Stanley on why anyone betting on a quick rebound in the EURXXX will be sorely disappointed.

Euro And The Greek Confidence Vote

The EUR is set to remain under pressure as the uncertainty regarding Greece intensifies once again. Any comfort for the EUR from reports Merkel and Sarkozy are to meet with the Greek government and IMF officials Wednesday, ahead of the G20, is likely to be short-lived in our view.

Indeed, Friday’s confidence vote in the Greek parliament will be extremely important in our view and will likely set the pace of the anticipated EUR decline over the coming months. Greek Prime Minister Papandreou could now find it difficult to win a confidence vote (due Friday 10GMT) given the defections from the government leave only the slimmest of majorities (just 151 votes in the 300 parliament).

If the Greek PM fails to win the confidence vote then the government will fall. There is the possibility for a new Government under a different PM or the formation of a unity government. But these outcomes seem unlikely given that the opposition is strongly in favour of new elections. While new elections will delay the vote on the new budget reform measures and potentially delay the next round of bailout funds from the EU, this is likely to be seen as one of the most positive (least bearish) outcomes for the EUR as it will avoid a referendum. There could even be an initial relief rebound for the EUR on any news that a referendum is being avoided, by the continued uncertainty and delays with regard the passing of the new budget measures and payment of EU bailout funds will likely keep the EUR under pressure over the medium term.

Indeed, most of the options under discussion in the market are EUR negative in our view. A victory by Papandreou in the confidence vote on Friday is likely to be seen as the most bearish for the EUR, opening the door to a referendum and the potential rejection of the bailout package by the Greek population. A referendum is likely to be difficult to win given that the opinion polls show that most of the population are opposed to the latest austerity measures. Hence, we would anticipate a continued sharp EUR decline if the Greek government passes the confidence vote Friday.

The delays and uncertainty leading up to a referendum are likely to provide a negative environment for the EUR as well as for broader risk sentiment. Indeed, this has the potential to trigger significant tail risks, including making it difficult to attract investors for EFSF bonds - EFSF funding is likely to have to start in earnest in November. The ECB may have to extend its asset purchase programme to absorb bonds the EFSF will not be ready to buy. The ECB's balance sheet could extent further as a result, putting the EUR under broad pressure.

But we suggest that the Greek government would get the help of the EU in persuading the population to vote in favour of the referendum. However, while any sweetening of the deal will also raise concerns regarding moral hazard, the EU will be extremely anxious to avoid the negative fallout that is likely to be generated by a failed referendum.

The sharp decline of EURUSD over the past couple of days has already breached important support levels suggesting a decline towards 1.3365 and then the 1.3145 low seen early October. We maintain our 1.30 year-end forecast for EURUSD, with 1.25 targeted in Q1 2012.

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FunkyMonkeyBoy's picture

Do the opposite of whatever these filthy shysters say.

caconhma's picture
"As reported in the popular Greek magazine, Oikonomikos Tachydromos on 14 Aug. 1997, Henry Kissinger, while addressing a group of Washington, D.C. businessmen in Sept.1974, said:

The Greek people are anarchic and difficult to tame. For this reason we must strike deep into their cultural roots: Perhaps then we can force them to conform. I mean, of course, to strike at their language, their religion, their cultural and historical reserves, so that we can neutralize their ability to develop, to distinguish themselves, or to prevail; thereby removing them as an obstacle to our strategically vital plans in the Balkans, the Mediterranean, and the Middle East."

French Frog's picture

I'm expecting that the same pressure that was put on certain politicians to side with Papandreou in the last 4 months (to get the necessary EU votes) will now be directed in the opposite direction so that THIS time he does NOT win the confidence vote and he is replaced by virtually anything that will guarantee a NO referendum.

Surely there has to be a group of politicians in Greece that is willing to take this on, because even with the lack of a referendum (that the people of Greece want and deserve), they will more than likely obtain more concessions from the EU, and more concessions = less austerity ----> they will be instant heroes !

I love the smell of democracy in the morning...

Unprepared's picture

Correction. Never base your decisions on whatever these flithy shysters have to publicly say.

The Big Ching-aso's picture

Exactly.   Which reminds me of Shyster Acronyms. 

One in particular and very much talked about at the moment.    'CDS'.     CDS really stands for:     Conned Dat Suckah.   Or, Conned Dat Sovereign.

One could make up a long list of Shyster Acronyms that should be defined as opposite to what they claim.

Village Idiot's picture

"One could make up a long list of Shyster Acronyms..."


chyster = mexican shyster

That's all I got.

philipat's picture

Schmyster = a Jewish shyster?


Although probably redundant.

philipat's picture

Thanks MS. Duly noted that the will of the Greek people, aka a referendum, needs to be avoided at all costs. Wonder what would happen if there was a referendum in the US on whether MS/GS etc should be allowed to run the country?

chump666's picture

C'mon Greek people send the French and Germans (banks) a wake up call from hell.  They should take the pain for being too greedy. 

Sarkozy, Merkel, Eurogroup President Jean-Claude Juncker, European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, IMF chief Christine Lagarde and an ECB representative will first meet at 1730 local time (1630 GMT). They will then meet Papandreou and his finance minister at 2030 local time.  Fearing widespread losses from a disorderly Greek default, shares of banks most exposed to Greece through sovereign debt holdings and loans were hammered. Societe Generale tumbled 16.2% and BNP Paribas and Credit Agricole fell more than 12%.

Buck Johnson's picture

I agree, tell them to F off and let them find out how austerity works with their own people.  They where greedy and it bit them in the butt, pure and simple.

theMAXILOPEZpsycho's picture

Looking forward to seeing an austerity announcement in france! the people will burn the place to the ground!

Cognitive Dissonance's picture

"Morgan Stanley On What Happens Next In Greece......."

Ashes, ashes, all fall down.

BoNeSxxx's picture

Welcome back CD -- the joint hasn't been the same without you.

ReallySparky's picture

Yes, welcome back. We've been over run by the AJ crowd. You left us to grow them and school them. Please by all means, stick around.

The Big Ching-aso's picture

Yes, and one gets the impression that time is not on anyone's side right now contrary to Mick Jagger's optimism.

LookingWithAmazement's picture

False alarm, referendum will be voted off this Friday.

Smartie37's picture

That prediction will be proven W-R-O-N-G shortly, like many others from the "All is Calm" CAMP near Langley

Gief Gold Plox's picture

I am inclined to agree. With so much at stake and such a force feverishly working on preserving the status quo, I do not believe Greeks will be permitted to express their opinion. Come Friday their government will fail, followed by re-elections resulting in no referendum. I expect politicians to be heavily bribed to ensure a vote of no confidence.

That said, I truly and honestly hope I am wrong and the Greeks take their future into their own hands.

letitgo's picture

You really think that if the market crashed enough for the risk-off USD to rise to parity against the EUR it wouldn't be accompanied by Southern Europeans leaving the EZ (would in all probability be positive for the euro) and/or massive USD printing Stateside?

I keep on hearing that the EUR is going to die, but am yet to have anyone explain to me how exactly (inlcuding MS).  Other than a moderate risk-off move of the EUR down against the "safe-haven" USD (ha!), but probably up against even riskier currencies, I don't see much happening to the downside for the EUR.


Idiot Savant's picture

Off topic: I'm surprise ZH hasn't posted the lastest on MF Global. It seems they've accounted for their missing customer funds. Perhaps my tinfoil hat is too tight, but I have to wonder if they haven't been bailed out.

Mike2756's picture

Well, you can't lie to a judge or a nun so it must be true.

navy62802's picture

There's so much BS being flung around about MF Global right now, it's impossible to know what's true. I think in the end, the feds will find that they broke the law and basically embezzled funds to cover their losses. The story probably goes much deeper than that, but the investigation won't. But until the dust settles a bit, it's hard to tell the lies from the truth, whatever that may happen to be.

Unprepared's picture

You trust the word of MF's lawyer? Well, maybe he's right.

All money is accounted for in the general ledger ... except for a one time VOSTRO to NOSTRO account transfer.

Mike2756's picture

"But we suggest that the Greek government would get the help of the EU in persuading the population to vote in favour of the referendum."

Maybe they can drop leaflets.

Racer's picture

Oh when the TBTF come out with get out of €, I am deeply urged to buy €


they are putting out their fishing line for suckers

(I am not interested in taking any bait from banksters, tends to be laced with poison)

Mr Lennon Hendrix's picture

It got to about $1.36 I think.  Close enough.  Look for it to come up a hair tonight, before this Meeting in Cannes.

Tomorrow, a long awaited event (background music by John Williams).  From the makers of Saving Greece, and Saving Greece Two, comes the epic story of our lifetime (theatrical pause).....

Saving Greece, Again

Starrying Academy Award Nominee, Angela Merkle and Academy Award Winner Nicolas Sarkozy; from famed Direct Herman Van Rompuy:  a tale of a country that was thought once doomed to fail.

"I love you Greece"  yells Angela, drenched from a rainstorm, pointing a gun at her head.

"Angela, no!"  Nicolas grabs the gun and pushes it to her side.  "Save Greece to save yourself."

Coming to theatres tomorrow.

JohnG's picture

Excellent.  Please keep these coming.  I'm still laughing at the "treehouse" series.  Timmah on the Nintendo, Obongo gathering fiat on the ground.

Thank you!

Thucydides's picture

My Big Fat Greek Default  Merkel and Sarkozy will be seated in front of course.

slewie the pi-rat's picture

maybe G-pap could win an election. who knows?

this report: Gold Seeker Closing Report: Gold and Silver Fall Almost 1% and 5%  has a commentary by jim sinclair which includes these fertile ideas (paste):

MF Global got busted because credit default swaps did not work. MF Global had their Greek and Euro bond position covered by credit default swaps that they thought would protect them. SURPRISE!  

They did not work because the Greek situation of a 50% haircut was given another name than “default” by a select group of Banksters and related parties. (end paste, my emph.)


peekcrackers's picture

well at  there was this at the  Slewie

What today’s economic managers don’t know is Titanic in nature. There is no practical solution to the economic problems of today making gold in all forms desirable long term.


overmedicatedundersexed's picture

MF found the money it was in Jon's bedroom in a shoe box. He just forgot where he put it..worked for Hillary.

CrashisOptimistic's picture


The issue is somewhat timing.

If Papandreou wins a no confidence vote, the referendum is ON, and no sooner than January and maybe later.  That delay is what smacks equities globally.  Not the result of the referendum, just the fact that it can loom and force a negative 2011 S&P as of Dec 31, which crushes the pension funds across the US that need 8% returns to make their monthly payouts to retirees.

If Panadreou loses the no confidence vote, the referendum may be OFF, but any new government, whenever it is formed, will take months and months to get all the legislation in place to qualify for the needed tranches of bailout.  The budget reforms won't even be voted on, let alone pass.  Again, there will be looming Greek spreads past Dec 31.  Hard for the S&P to rally like that.

I think way too little focus has been on the Greek strike/riots and their impact on GDP.  Papandreou is very possibly doing the only thing he can do to generate growth . . . get them out of the streets.  If they vote on all these austerity measures, it may get them back to work.


nmewn's picture

What would Daddy Pap do?

bobert's picture

Pap Andreas, or Pap Georgeous?

msmith's picture

The Euro has plenty of room to fall.  USD strength continues.  Here is an analysis of EURUSD and AUDUSD.  Another push lower for both pairs before a retracement.

JohnG's picture



Yes.  That's what gold is telling me.  In the face of a strong dollar, gold is holding up (as denominated in $).  Very good.

When Bernank prints, that will light a fire under gold for real.

And he will print, probably not tomorrow, maybe in Jan., but inevitably, Ben WILL print.

Got Gold?

spanish inquisition's picture

There is still time to prepare, forget about Greece and Europe and all the 2012 predictions!

At 11:11:11 on 11-11-11 be prepared for the Nigel Tufnel moment.

I don't know what that means but my expectation is one more than I can imagine.

Silver Kiwi's picture

" There could even be an initial relief rebound for the EUR on any news that a referendum is being avoided "

so 'the market' doesn't give a fuck about the rights and future of the person in the street; be he Greek, Italian or Yank. Just as long as 'the market' gets to make it's bonus. Don't 80% of the smucks in 'the market' know they are also part of the 99%??? Twats...

Tsunami Wave's picture

I wanna hear what happens next in Morgan Stanley, though not by Morgan Stanley, and why it is all very overall negative.

Matt1973's picture

The Asians are buying the yellow metal tonight