Greece the story so far

The clock is ticking for Greece to reach an agreement with its creditors to avoid further default and potential exit from the Eurozone. The deadline for a decision to be made is now Monday, can both sides reach an agreement in time? Will the markets remain calm? This infographic is full of potential Grexit scenarios and actionable trade ideas to help you make the most of your trading in the next few days.

• 30th June: Athens cannot agree to a bailout extension with their European and IMF creditors and defaults on a EUR 1.5bn payment to the IMF on 30th June
• 5th July: A referendum is held in Greece to allow the Greek people to vote on whether or not to accept new bailout terms. The Greek people vote no to accepting the new bailout conditions by a 60% majority.
• 6th July: Capital controls are imposed and Greek banks are shuttered for one week.
• In the week leading up to the referendum EUR 4bn was withdrawn from the Greek banking sector.
• After the referendum, Greek banks were thought to have less than EUR 1bn of cash left.
• The Greek banking system is reliant on ECB emergency funding, and capital controls are extended until at least 13th July.
• 12th July: Another EU summit is convened and billed as the last chance for both sides to reach an agreement.
• 20th July: Greece owes the ECB EUR 3.5bn, if it fails to pay this then it may be cut off from vital ECB funds, causing the collapse of the Greek banking system.

Three possible outcomes for Greece:

1, Consciously uncoupling: Greece leaves the Eurozone gracefully

• If both sides cannot reach an agreement by the 12th July EU summit then the European authorities may agree a timetable for Greece to leave the Eurozone over a number of months or years.
• The ECB agrees to prop up the Greek banking sector for a period of time, before Greek banks can go it alone.
• Greece’s creditors agree on a debt restructuring that gives the Greek economy some breathing space.
• The EU authorities agree on trade deals so that some ties between Greece and the Eurozone remain, this could help growth down the line.
• The Greeks reintroduce the drachma – it is pegged to the EUR for a while, which limits the inflationary impact of a weak currency. Eventually it helps to boost exports.

The market reaction: This is the best outcome for risky assets, in our view. The EUR may stage a prolonged rally, the drachma may also stabilise after a period of time, and European stocks could continue their rally from earlier in 2015.

2, Maintaining the status quo: Greece stays in the Eurozone

• The two sides manage to secure another bailout programme, thus avoiding more defaults.
• But Greece has to agree to reform and more austerity, Greece’s creditors do not agree to any debt restructuring arrangements.
• The Greek economy continues to suffer as austerity continues to choke off growth.
• Eventually Greece requires another bailout, which causes more market turmoil.

The market reaction: The EUR and European stocks may have an initial bounce higher, but once investors realise that the Greek problems have not gone away, they may grind lower for the rest of the year.

3, Unconscious uncoupling: a messy Grexit

• Greece cannot reach an agreement with its creditors.
• This leads to a forced Grexit and market turmoil.
• Greece is shut out of the financial markets and defaults on all repayments due in the foreseeable future, including the 20th July payment due to the ECB.
• The Greek banking sector collapses.
• Greece is submerged into a deep, long-lasting recession for many years.
• Unemployment surges, inflation soars.
• Peripheral bond yields rise as Italy and Spain’s position in the currency block is considered less safe now that Greece has had to leave. This could sow the seeds for the next crisis.

The market reaction

This would likely cause a sharp drop in the EUR and European stocks. EUR/USD may return to parity and the Dax could wipe out all of its gains of the last 12 months. In the long term, the EUR may struggle to recover, and European stock markets could remain less attractive than their US peers.