Street Sees Greece Euro Exit Most Likely

JPMorgan Chase & Co. economists said a Greek departure from European monetary union is now probable after the country’s electorate rejected the austerity needed to secure international assistance.

“Although the situation is fluid, at this point Greek exit from the euro appears more likely than not,” Malcolm Barr, an economist at JPMorgan in London, said in a report to clients on Sunday, adding it could come “under chaotic circumstances.”

Wall Street analysts will be reexamining the odds on Greece’s membership of the euro after voters used a referendum to balk at proposals for more spending cuts and tax hikes from its creditors. With more than 80 percent of votes counted, more than 61 percent of Greeks backed Prime Minister Alexis Tsipras by voting “no” to the latest proposals. Some 39 percent voted in favor, according to results from the Interior Ministry in Athens.

With Greek banks running out of euros after being shut in the run-up to the plebiscite and capital controls in place, Tsipras’s government has just a “handful of weeks” to negotiate a new aid deal, Barr said.

There will be a temptation to call another national vote on membership of the euro and to begin issuing alternative legal tender in the meantime, the analyst said. JPMorgan a week ago attached a 60 percent probability to the austerity measures being supported.

Teneo Intelligence, a London-based consultancy, put the probability of Greece leaving the euro at 75 percent after the vote, while Evercore ISI in Washington put it at about 67 percent in the next six months to 12 months.
Berenberg Bank Chief Economist Holger Schmieding said the country is still not quite on “autopilot” toward an exit, although the referendum result “makes it much more difficult to still avoid that fate.”

Bloomberg

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