Now that Greece has capitulated [15] and offered up its sovereignty in what can only be described as an unconditional surrender to Berlin and Brussels, you might be curious as to what the most likely next steps are for Greece, its government, and its people.
For reference, here is a quick summary courtesy of Bloomberg:
WHAT’S NEXT?
- The Greek govt is set to renew a bank holiday and capital controls decree which expires today
- The ECB’s GC is expected to discuss ELA for Greece’s banks
- Eurogroup meeting later today will work on Greece’s short-term needs and discuss bridge financing
- Greece has accepted to legislate on 4 action points by Thursday July 16, and another two by July 22, according to Malta’s PM Muscat
- Then Greece would come before the Eurogroup and euro- area member states would decide to open or close the needed negotiations that would let the ESM to disburse funds, Muscat says
- Dutch PM Rutte says it could take weeks to negotiate Greek ESM aid deal
WHAT DOES IT MEAN FOR GREECE’S BANKS?
- Greek banks are to be recapitalized by Greek asset fund and Tsipras says the deal protects the stability of the banking system
- ELA will stay in place all the while that another bailout is in the pipeline, Mizuho’s Peter Chatwell says in e-mailed comments
- ECB ELA will most likely stay in place until at least Wednesday, pending Greek ability to legislate the list of prior actions, Oxford Economics says in a note
WHAT ABOUT TSIPRAS AND SYRIZA?
- Support at Wednesday’s vote from Greece’s pro-Europe parties will come at a cost, when the timing is right, Barclays says
- It makes more sense for those parties to let PM Tsipras bear the political cost of capital controls while triggering elections would make default inevitable, plunging the country into a complete paralysis for the next 30 days
- Don’t entirely rule out a coalition partner change (with To Potami), and believe this situation will eventually lead to new elections after the summer
- A new unity govt or an early election very possible, Rabobank says
- Given political fractures in Greece, passage of the proposal through parliament is far from certain, Richard Cochinos, strategist at Citigroup, says in client note
- Decent likelihood of a Greek cabinet reshuffle; govt could possibly fold on reforms
- Tsipras may seek to expel those opposed to a deal with creditors from the party as he no longer commands a majority in parliament, Reuters said, citing people familiar
- “Constructive” centrist parties will likely continue to support the government coalition, Barclays says
- Snap elections necessary but can’t take place now, Greece’s Labor minister Skourletis says
WHAT ABOUT ITS CREDITORS?
- Germany, the Netherlands, Austria, Slovakia, Estonia and Finland all need parliamentary approval to open negotiations on a new Greek program, an EU official said last week, while France’s Hollande said French National Assembly to vote on the deal on Wednesday
- While Marcel Fratzscher, president of the DIW economic institute, says it will be very difficult to sell the deal to German voters and Germany’s Greens say the deal means Greece will be stuck in a recession, a govt lawmaker said it is likely the German coalition will approve the deal
- Rutte says he’s unhappy he has to break an electoral promise to Dutch constituents on no further Greece aid
- The deal is so tough there’s a better than even chance that the Finnish parliament will authorize the negotiations, Berenberg’s Holger Schmieding writes in e- mailed comment
- Even if a deal can eventually be reached to keep Greece in the euro area, there will be long-term consequences, the damage done to relations between France and Germany may prove irredeemable while Germany’s suggestion Greece be granted a short term exit from the single currency shatters the principle that euro-area membership is irrevocable, Oxford Economics says
IS THERE ANY AGREEMENT ON RESTRUCTURING GREECE’S DEBT?
- Over the weekend, an IMF source told Reuters said that if other creditors couldn’t agree on a haircut, grace periods on interest payments could be combined with lower rates and extended maturities
- Tsipras said the negotiations had managed to gain restructuring while Merkel confirmed interest-payment grace periods and longer maturities will “be discussed once there is a successful evaluation of the new Greek program”
WHAT ABOUT GREXIT?
- Tsipras says summit outcome averts collapse of banking system
- Risks of a Greek exit have reduced in the very short term as the ECB should remain supportive as long as prior actions are passed in Parliament by Wednesday and talks are headed in the right direction, Barclays says
- The chances of a Grexit have now fallen below 50%, UBS WM write
- The deal and Wednesday’s vote may stretch the Greek govt to breaking point, forcing new elections; the month’s hiatus that would ensue while elections took place would almost certainly see Greece ejected from the euro area, Oxford Economics says
