Merrill Lynch: "Greek Risk Is Back"

You read about it here first (here and here). Now it is time for the sellside (whose products your soft dollars so generously fund) to wake up to what is happening next week.

From Bank of Countrywide Lynch.

Greek Risk Is Back


The estimated majority margin of only 5 votes for a key parliamentary vote on Wednesday seems too small to feel comfortable. If the vote goes wrong, Greece exit scenarios will come back.


Don't let Greek fatigue blindside you Greece is a key risk next week. The Parliament will vote on a new austerity and reform package on Wednesday and the 2013 budget on Sunday, following substantial delays in the negotiations with the Troika. The risk of a negative vote on Wednesday is real, as Democratic Left (third party in government coalition) is threatening to vote against the package because of opposition to labour market reforms, while a number of PASOK parliamentarians (second party in coalition) are threatening to vote against the package because they believe that it is against the coalition government agreement. Assuming these threats materialize, the government majority drops from 25 to 5 (it was 29 after the last election).


This is far from a comfortable margin. A negative vote will be a very negative event for the markets in our view, as Greece is unlikely to receive the next tranche from the Troika and markets could start pricing a Greek Euro exit. Even if the vote is positive, a small majority raises questions about the sustainability of the government and suggests that future votes on program reforms could be at risk. In the meantime, the continuous deterioration of government debt dynamics makes an official sector haircut inevitable in our view. Indeed, we believe that the IMF cannot disburse its part of the next tranche, unless debt sustainability is restored