Following the ‘no’ vote in the Greek referendum, there is deep uncertainty over what the possible scenarios are for Greece and for the Eurozone. The vote makes a deal between Greece and the creditors harder to achieve and increases the odds of Greece’s exit from the Eurozone. Still, I believe that European leaders will do whatever it takes to prevent this latter event.
Knee-jerk reaction in financial markets may well be very negative. Fears of Grexit will certainly increase and contribute to financial market turmoil. Yet, contagion can be contained. In the near-term, the heavy lifting will have to come from the ECB, mostly through accelerated buying of assets in the context of the asset purchase programme. However, any liquidity support to Greece would prove difficult without a clear political mandate.
In the long term, this whole saga may turn out being positive as it may trigger a much-needed clarification on Eurozone governance and the future of the European Union. In case of Grexit, however, the damage to the Eurozone would be permanent.