Courtesy Douglas R. Terry, CFA
Much of the headlines about the referendum that is underway in Greece as I write this morning tell stories of confusion. What are the Greek people voting on? Officially, they are voting Yes or No on terms of a deal with creditors that is no longer on the table. Greek Prime Minister, Alexis Tsipras, says a No vote will give him more power to negotiate a better deal. But, threats from EU officials claim a No vote would mean exit from the union and would cause real personal, economic hardships for Greeks in the form of revoked pensions, no fuel and no medicine as examples.
At this moment, over 40% of the country has voted. This means the vote will be official. The vote appears split right down the middle. Exiting the polls, some voters are expressing disappointment in their government and an appeal for discipline. Others express anger at the creditors and EU for “blackmail.”
Alexis Tsipras came to power on a platform claiming that austerity was not working, that the country needed relief and then time for him to implement reform. The deadline and hard line stance by creditors placed him in a difficult situation and the referendum can be seen as Tsipras saying to the constituency “what do you want me to do?”
But what about the hard line stance being taken by the creditors? Would Greece really reform given relief and more time? Greece has been late or not current on debt payments more than 50% of days for the last 200 years. History warns to beware of a Greek crying wolf. Thus the hard line in the sand by creditors who scarcely believe leniency would effect a different outcome in the future.
The most important takeaway from today’s vote may not be the results, but the response. Already, French Economy Minister has said, “Whatever the result, we must resume political discussions tomorrow.” What policy and terms will result? Is further leniency forthcoming? Will there be tough love from creditors leaving Greece to fend for herself? Will it be humility and more austerity, self-imposed discipline?
The vote matters, but the policy response later today or tomorrow is where we should focus. Here are some charts and tables from our strategic research partner outlining the scenarios and desired content for the response for a positive result for risk assets.