Marko Papic of BCA Research has sent out today a short report about implications of the greek crisis:
- Greece can cause a correction in the context of high valuations (in the US) and upcoming Fed tightening.
- Things that went wrong this weekend in Greece? Policymakers are playing a “two-level” game, with domestic politics influencing international bargaining. As with previous euro area crises, market and socio-political turbulence is required to get policymakers to overcome domestic opposition.
- There is no timeline for future events. The key date going forward is the €3.5 billion redemption Greece owes to the ECB on July 20. That is it.
- The ECB will pull the plug on Greece:if the July 20 payment it is owed is not fulfilled.
- The upcoming referendum is not a vote on euro area membership: The referendum is important, but a ‘No’ vote does not preclude an agreement. Athens has two weeks between the July 5 referendum and the July 20 ECB redemption to get a deal. In fact, the odds are in favor of a ‘Yes’ vote.
- Greece would exit the euro area by printing drachmas.
- ‘Grexit’ could not produce substantive contagion beyond sentiment. It is a source of volatility in the short term, but a buying opportunity for European peripheral equities in the long term.
- Greece woud not be better outside the euro area.
- Geopolitical you Ramifications of the crisis: Positive for European integration, negative for Greece, and neutral for Russia.
- Investors should prepare for short-term volatility, and look for long-term opportunities
