- Scenario 1: Yes or No vote, but no deal, no agreement. This is the worst case
scenario. The ECB would stop supporting banks, Greeks banks would be in default and the country would
also be considered in default. This scenario would definitely pave the way to a Grexit.
- Scenario 2: an agreement before July 20, with a debt renegotiation. Softer
creditors and/or stronger bargaining power for Greeks (thanks to a No vote) would allow the “perfect deal”.
Banks reopen, Greece is able to repay all debts and no longer represents a risk for the coming years. Such
an agreement would certainly pave the way to a new step towards federalism … the best case scenario.
- Scenario 3: an agreement before July 20, without a debt renegotiation.
Greeks do want a deal, including a bail-out and debt renegotiation / debt cut. Negotiations must be tough,
particularly if Greeks vote No with a strong majority. Financial markets will certainly be pleased with an
agreement, but debt problems would certainly resurface soon.
- Scenario 4: an agreement after July 20. An agreement is definitely good news, but the
20th of July is a clear deadline. In such a scenario, Greece would not be able to pay €3.5bn to the ECB,
and we would enter into uncharted territories: the ECB should normally stop supporting Greek banks (look
at the pressure mounting from ECB members such as Germany and some small countries). If so, Greek
banks would default… etc
Investment ideas at a glance
The structure and positioning of our portfolios will not radically change (the ECB should pursue and
accelerate QE if needed (bond yields to stay low), protecting peripheral countries, and pushing the euro
lower. However, hedging strategies have been implemented in some areas to reduce risk in front of the
worst case scenarios. Long Gold and long US Treasuries as the best hedges to the worst case scenarios.
Equities as macro-hedge of corporate bond markets for those who do want to reduce risk in this segment.
Note that hedging is not a question of probabilities of scenarios: even if the worst case scenario has a low
probability, the outcome of such a scenario are so dramatic that some hedging is necessary.
What’s next? A timetable as a quick refresher
• July 5: Referendum
• July 8: Greece to sell 26 week bills.
• July 10: Greece needs to refinance €2bn in T-Bills.
• July 13: IMF loan repayment totalling about €450m due. Eurogroup meeting.
• July 14: Greece needs to repay ¥11.7bn in yen loans.
• July 16: ECB Governing Council monetary policy meeting.
• July 17: Greece needs to pay €71m in interest on 3yr bonds sold in 2014.
• July 20: Redemption of €3.5bn in bonds held by the ECB.
• July 31: Moody’s to review Greece’s sovereign debt.
• August 1: Interest on IMF loans (payment due August 5), totalling about €175M.
• August 5: ECB Governing Council non-monetary policy meeting. Greece to sell 26 week bills.
• August 7: Greece needs to refinance €1bn in T-bills.
• August 14: Greece needs to refinance €1.4bn in T-bills.
• August 20: Greece needs to repay €3.2bn in bond redemptions held by the ECB.
Philippe Ithurbide is chief economist at Amundi