Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks
As we said earlier today, following today’s dramatic referendum result the Greeks may have burned all symbolic bridges with the Eurozone. However, there still is one key link: the insolvent Greek banks’ reliance on the ECB’s goodwill via the ELA. While we have explained countless times that even a modest ELA collateral haircut would lead to depositor bail ins, here is DB’s George Saravelos with a simplified version of the potential worst case for Greece in the coming days:
The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.
All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only an economic and financial collapse is what the Troika and ECB have left as a negotiating card.
However, that cuts both ways, because while Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: a Euro printing press.
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Watch the banks closely tomorrow. There is a reason that the financial experts are calling the Greek collapse the beginning of contagion.
David DeGerolamo
