Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial

That Greece Endgame: One Third of ATMs Emptied As Greece Goes Political When Bailout Talks Fail

This might finally be the Greece Endgame. On Friday, the Euro nations gave Greece a proposal that allows it to repay its debt. On Friday, Greece rejected that proposal because it still contains too much austerity for the country to recover. And largely because the bailout proposal will effectively just do this to Greece:

(Note: Cat you see is Greek people. Cat you don’t see until it’s too late = the IMF, the ECB and all those other people)

Greece will hold a Referendum, And Whoa.

In what is a huge political coup, Greek president Tsipras announced a referendum on July 5, which is the next Sunday, for the Greek people to decide to accept (or not) the deal. Hugo Dixon has a good analysis of the situation politically – this is pretty much a referendum of whether Greeks want to stay in the Euro. If they don’t, every other concept opens up for discussion. If they do, Tsipras will leave office and that’s another few months of being in limbo.

The Euro finance ministers have refused to extend the bailout, which will expire on 30th June. So technically on 30th June, Greece doesn’t pay the IMF. This is not a default, because IMF is like a headless chicken that doesn’t really know what to do if someone refuses to pay, except to ask again, after some time, if you will please pay. They might decide not to call it a default.

The bailout expiry means no more emergency liquidity to Greek banks post Tuesday? Which means banks are in a spot, and already, people seem to be lining up to take out money from ATMs. It seems one third of ATMs have run out of cash already.

There will be capital controls – how much you can withdraw, how much you can pay outside the country, etc. The Greek currency, the drachma, might come into play soon.

Things Will Get Worse, If They Don’t Get Better

Meaning: The Greek situation isn’t a status quo. It either gets much worse (no bailout, Greece out of Euro, capital controls, bank runs) or it gets better (bailout back, Greece gets an extension etc.). Politically the referendum means the “worse” situation is likely, as the vote will be treated as ‘do you want more austerity?’.

However, “worse” is probably just a word. After so much pain, it’s probably just good to know that it’s over and you get to start over again.

What’s in It for India?

Let me get this absolutely straight.

I have no effing clue.

We’re not directly impacted. We haven’t lent money to Greece. We have very little trade with Greece.

But we have given money to the IMF. And them not getting paid is bad for us.

RBI’s Rajan thinks there’s not that much of an impact and we have the reserves to handle outflows. Other players say Greece has been “factored in”, meaning markets won’t fall much.

We don’t know, and the correct answer is to wait and see what happens. But if there is no deal by Monday morning and the bank run in Greece worsens, I think India’s going to se some mega ugliness in the markets – rupees, stocks and fixed income.

  • ]{umar says:

    Greece is factored in. So was bear sterns. The problem was lehman. I think greece was walled off and everyone had enough time to be prepared. Its italy or spain that we should really worry abt.

  • Paddy says:

    Consolidated Foreign claims on Greek Banks as a % of GDP of reporting currency of the banks: India’s exposure stand at 0.0001% (BIS, IMF)

  • Shash says:

    Nope, not factored in 😉 Party is just starting!

  • Ashish says:

    Apologies for the language but the cat analogy is just plain bollocks. EU and IMF have a very high interest in safeguarding Greece and they have been trying hard to do so. If anything – the hand that feeds the cat is IMF/ECB/EU, the cat is rightly Greek people, and the last minute cat is the Greek politicians/millionaires who have been milking the system to fill their own pockets.

    • Let’s put this another way – it doesn’t matter that the cat or someone else ate up what it was fed yesterday. What matters is that the aid they are supposed to receive today will not go to help them, it will go straight to the lenders. Essentially the lenders are lending more so that Greece can pay them (the lenders) back.
      The Greek politico/millionaires ate their lunch off the cat earlier, I agree.