Barclays: Most Likely Scenario Is Greece EMU Exit

On Sunday, Greek voters decided, via a referendum, to reject the last deal creditors proposed. While Chancellor Merkel and President Hollande are scheduled to meet in Paris on Monday -at 6.30 p.m.- to assess the situation, analysts at Barclays argue that the most likely scenario includes the country exiting the Economic and Monetary Union of the EU.

“Agreeing on a programme with the current Greek government will be extremely difficult for EA leaders, given the Greek rejection of the last deal offered and will be a difficult sell at home, especially at the Bundestag or in Spain ahead of the general elections,” a team of 11 Barclays researchers explain in a report issued late-Sunday.

The firm expects the European Central Bank’s Governing Council to shut down the emergency liquidity assistance around July 20. This means Greece will likely run out of liquidity (and eventually, solvency); not be able to repay its debt, thus, defaulting it; and need to return to printing its own currency (issuing IOUs, at first, actually) in order to re-inject liquidity and recapitalize banks.

Get Started

Earn 7.2% — No Matter What the Fed Does

Markets expect rate cuts — but your earnings don’t have to suffer. Lock in 7.2% until 2028 from ten individual bonds.

Get Started

Can an exit be avoided?

While Barclays analysts think the EMU exit is the most likely outcome, they can envision two other possible scenarios where Greece does not leave the Union. One of the options includes Greece and the EU agreeing on a program that adjusts to the terms imposed by the IMF. The other option is more disruptive: rapidly worsening financial and macroeconomic conditions and “social unrest could result in a political crisis, yielding a more moderate pro-deal government.”

As it can be expected, the Global X FTSE Greece 20 ETF GREK is down substantially on Monday trading.