Nomura's Base-Case In Greece Is A Negotiations Deadlock

In a report published Monday, Nomura's European Economic Lefteris Farmakis commented on the Greek referendum held over the weekend which resulted in a "comfortable landslide" for the "no" vote.

Farmakis noted that he suggested before the referendum took place that a "no" win would place Greece in an "extremely difficult spot" and that it would make it "very difficult" to revive the political dialogue. The analyst added that following the results, the whole situation "has indeed become even more complicated."

Farmakis said the "shenanigans" of the five-month long negotiations have "eroded" the credibility of Greece's Prime Minister Alexis Tsipras and built an atmosphere and mutual distrust between his administration and European Union policymakers. Nevertheless, a "no" victory implies Tsipras remains the "de facto Greek interlocutor" and the two sides will be forced to restart negotiations under the same "difficult" circumstances that previously existed.

Related Link: Goldman Sachs: ELA Running Low For Greece, 'No Vote' Won't Bring Liquidity

The analyst further suggested that the prospects of a deal are now "even slimmer" and that it is hard to discern any legal constraints posted by the referendum. As such, there are two broad categories of scenarios that could present themselves.

Scenario One: Deal Reached In The Coming Days/Weeks

The first possible outcome involves Tsipras taking advantage of the referendum results to strike a deal with the Eurozone as it could be argued he is now "better placed" to fend-off the challenge of the Left-block within Syriza, allowing him to impose on his own party harder measures. The government could recommend the acceptance of a deal along the lines of the improved "feasibility blueprint" which are modified in a way consistent with a two- to three-year ESM (European Stability Mechanism) programme.

Nevertheless, Farmakis stated that this "bullish outcome" occurring in the coming days or weeks is "rather improbable" as there are many obstacles that need to be overcome.

Scenario Two: Prolonged ‘Impasse' In Negotiations

Farmakis suggested that a failure of the first scenario to occur would lead to another "prolonged impasse" in the negotiations. This scenario represents the analyst's "base-case."

Unlike the first scenario, time is short with the July 19/20 Eurosystem repayments "standing out" as the main deadlines with a few other external payments due in the interim. In light of this, the analyst suggested that Greece may hold a second referendum linking membership in the Eurozone with the associated costs, comprising of an official conditionality offer by lenders.

In addition, Farmakis speculated an issuance of a Cyrpus-type ELA (Emergency Liquidity Assistance) ultimatum by the ECB, according to which a programme needs to be in place by a fixed date to "ensure the solvency of the banks."

Farmakis concluded that this scenario is the "natural next-step" and could actually mark the beginning of what may well be the last act of the "Greek drama" within the Eurozone.