The Complete Greek Crisis Playbook: Full Updates I

Less than 30 hours before markets reopen, both sides are not only not making progress, they have actually gone backwards and are currently further away from any deal then they were a week ago.

The immediacy of the crisis lies in Tuesday's deadline to repay €1.5bn to the IMF. As of now, creditors have not yet released additional bailout funds to the terminal patient. This puts the situation in full crisis mode because there is an extremely high chance that Greece will default on Tuesday's payment.

We will provide readers with the latest breaking news and developments on this pivotal situation as they come. The fate and legacy of Athens now teeters on the next two day's progress or lack thereof.

On the plausible market reactions when trading resumes late Sunday, we have written a primer on how traders should protect themselves. It is almost a certainty that extreme risk aversion will be the dominant theme for the entire week.

We have complied all relevant news, updates, commentary, and analysis in the next two sections (Part II & Part III). You are encouraged to explore the content-stuffed pages for the full experience.

And The Latest...

  • Greek Finance Miniater Yanis Varoufakis resigns, even after "no" vote.
  • Official outcome of public referendum is to reject the EU's bailout proposals.
  • 100% of votes counted - 61.31% "no", 38.69% "yes" - Ministry Of Interior.
  • Greek PM Calls Emergency Meeting For Bank Liquidity: MNI
  • Polls have closed at 7pm. Votes are being counted.
  • Voting has begun at 7am Greek time.
  • More than 50,000 pro-Syriza supporters turned up on Saturday to join Tsipras' rally.
  • European leaders say no point in talking before Sunday's referendum, ends Eurogroup conference call.
  • Greek government prepared to accept creditor's proposal with changes, Bloomberg reports.
  • IMF confirms Greece failed to pay, now in "arrears".
  • Greece asks for 2-year bailout and debt restructure from the European Stability Mechanism (ESM).
  • Greek officials confirms country will default to IMF later today.
  • Greek government wants to seek court injunction to prevent ouster from Eurozone, i.e. Grexit.
  • Some banks will allow withdrawals on Thursday but will be limited to €60 per person and €240 for pensioners.
  • Greece imposes capital control decree, banks to remain close for entire week until after Sunday's referendum (5 July).
  • Greek markets will remain closed for the entire week until bank holiday ends.
  • Panic on the streets as people storm bank branches, longest queues seen at all ATMs, hoarding gas, food, and water the the pump and supermarkets across the nation. All this depite PM Tsipras urging calm.

What To Expect Next

We maintain our baseline that a "no" decision inherently conveys to European leaders that Greece wishes to part ways from the monetary union.

Ever since the announcement of the referendum last Saturday, we were embedded in their train of thought, that the vote was not about the bailout but on euro membership - something the Greek government has denied time and again.

Regardless of he rhetoric, we will know if we are correct in the next few days which is poised to be event packed. Expect multiple meetings and conference calls across various levels, after the initial drool phase has eclipsed.

As mentioned in previous section (below), the ECB will draw immediate attention as to whether they decide to release fresh funds to Greek banks.

Markets will also be looking for signs of cooperation or lack thereof amongst European leaders; a budding start to improving Greek-European affairs must always start with willingness by both parties to reach conclusive deals despite disagreements. From where we currently stand, this seems unlikely.

Already, European political leaders have voiced their antagonism towards Greece's decision to reject their second bailout a very critical juncture. It is safe to say that they feel threatened by Greece's vulgar posture, threatened that Greece may really rattle the construct of the Eurozone this time.

We feel the conservatives within the Eurogroup will never take this sitting down and might even go on the offensive should Tsipras gain ground in his talks. We advise readers to pay very close attention to the state of affairs over the coming days. The tone and tempo of further negotiations (if any) will be set by the events coming in the next 48 hours.

More from RBC:

"What happens on Monday?

Various European-level meetings are expected to take place. These include a EuroWorking Group meeting (i.e. top-level officials from euro area finance ministries). This may then be followed by a eurogroup teleconference (i.e. finance ministers-level) to take stock of the situation. At the Leaders’ level, German Chancellor Merkel will meet French President Hollande for a bilateral in Paris, with both calling for a European Council summit to follow on Tuesday. Separate from the political proceedings, the ECB’s Governing Council is also expected to meet to discuss Emergency Liquidity Assistance (ELA) for the Greek banking sector, though this meeting has not yet been confirmed.

The first thing to watch is how Syriza responds

On Thursday, Greek Prime Minister Tsipras claimed in the event of a ‘no’ outcome, he would be in Brussels within 48 hours signing a deal. In practice that is almost impossible––any new deal will need a lot of technical work so at best is a few weeks away. But in the first 48 hours there should be some sign of what willingness there is to compromise on both sides. If Tsipras takes a defiant tone (citing the democratic choice of the Greek people) we expect Europeans leaders to respond that they are also democratically elected (as they did after the January election). In that case we would expect the market reaction to worsen.

The second thing to watch is how the ECB responds

The Governing Council is expected to meet on Monday to take stock of the situation. A Greek government spokesperson revealed that the Central Bank of Greece would submit a request to the ECB for a further increase to the ELA facility limit, which currently stands at €89.4bn. This follows from various press reports, including Bloomberg, indicating that Greek banks were struggling to cope with deposit withdrawals even with the capital controls already in place. Note that prior to the weekend, the head of Greece’s banking association, Louka Katseli, said that ‘liquidity is assured until Monday, thereafter it will depend on the ECB decision.” She added that the liquidity cushion banks currently had stood at about EUR 1bn.

We nevertheless consider there to be limited prospect of further extension to ELA at this stage, with the risks instead skewed towards the Governing Council restricting access to the facility, including by increasing collateral requirements further. An increase to the ELA limit was not a ‘given’ even if the referendum had yielded a ‘yes’ outcome, and as such a ‘no’ vote makes that decision even more difficult, in our view. Recall that ELA lending requires banks to post “adequate collateral”, and may only be provided to “illiquid but solvent” institutions. In the current environment, whether such conditions are satisfied is predicated in part on a judgment about the likelihood of a new financial assistance programme being agreed for the Greek sovereign.

Does this mean euro exit?

A ‘no’ outcome certainly increases the risk. This is particularly the case if the Greek government believes that it will have substantially more bargaining power with the institutions and brings more ‘red lines’ to the negotiating table. Much will depend on the tenor of discussions when they begin next week."

Aftermath Of Voting "No"

Very early in illiquid pre-open trading, euro is much lower against all majors especially the yen. USDJPY is 150pips under Friday's close, EURUSD is under 1.1, 100pips under Friday's close. Chart by Business Of Finance

Very early in illiquid pre-open trading, euro is much lower against all majors especially the yen. USDJPY is 150pips under Friday's close, EURUSD is under 1.1, 100pips under Friday's close.

Chart by Business Of Finance

The most immediate and pressing issue for Greece now is not a bailout but restoring liquidity channels to its insolvent and cashless banks. The ECB has not extended further help for the past week and we think they will continue to play hard ball with the Greeks now that a "no" vote has prevailed.

Reason being, and as we have explained in previous sections, Greece's financial positioning has been greatly comprised since 26 June (last ECB ELA residual capital extension).

Rather than restoring funding lines to Greek banks, we believe the ECB will instead tighten collateral rules before raising Greece's ELA limit.

Greek officials are therefore scrambling amongst themselves in a futile bid to rectify this issue once the current bank holiday expires Monday evening. If the ECB refuses to budge (our baseline), expect an extended bank holiday and much more unrest.

More from MNI:

"The source said that so far Tsipras has not had any communication with other EU leaders "but that could change in the coming hours." Finance Minister Yiannis Varoufakis is currently meeting with the representatives of the Greek banking union to mull whether the banking holiday ,which expires Monday evening, should be prolonged and until when.  

Greece's government spokesman, Gavriel Sakellarides told Antenna TV that the Central Bank of Greece will submit Sunday evening a request to the European Central Bank for further Emergency Liquidity Assistance saying "there is no reason why we cannot get ELA" adding that "negotiations should start as soon as today with reasonable demands."  

The Greek source who spoke with MNI said that, according to his estimations, the No vote would be even higher than what the preliminary polls showed earlier.  

The source also said that the EuroWorking Group, the aides of the Eurozone Finance Ministers, are expected to convene Monday and that the Eurogroup might also convene via teleconference to assess the situation.  

A Banking source has told MNI that even when banks reopen capital controls are expected to be readjusted and imposed for a long period of time, until trust is restored and a deal with the creditors is being reached."

The ball is now clearly in the ECB's court. We are not sanguine that Mario Draghi and his team will be too compassionate for the Greek people; after all they voted this upon themselves.

If the ECB were to stick to its mandated rules and not blink, the ramifications could be very draconian for Greek banks which would then be required to repay all existing ELA liquidity to the Greek central bank, starving them of their last euro of cash.

More from Deutsche Bank:

"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."

When push comes to shove, we can expect some pretty chauvinistic measures taken by Syriza hardliners, which in this case means suing the ECB with "dereliction" of its duties to maintain financial stability, chopping off the heads of non-compliant members of the Greek government, and even printing their own eurosThe Greeks have truly lost it this time.

More from the Telegraph:

"Syriza sources say the Greek ministry of finance is examining options to take direct control of the banking system if need be rather than accept a draconian seizure of depositor savings - reportedly a 'bail-in' above a threshhold of €8,000 - and to prevent any banks being shut down on the orders of the ECB.

Government officials recognize that this would lead to an unprecedented rift with the EU authorities. But Syriza's attitude at this stage is that their only defence against a hegemonic power is to fight guerrilla warfare.

Hardliners within the party - though not Mr Varoufakis - are demanding the head of governor Stournaras, a holdover appointee from the past conservative government.

They want a new team installed, one that is willing to draw on the central bank's secret reserves, and to take the provocative step in extremis of creating euros.

"The first thing we must do is take away the keys to his office. We have to restore stability to the system, with or without the help of the ECB. We have the capacity to print €20 notes," said one.

Such action would require invoking national emergency powers - by decree - and "requisitioning" the Bank of Greece for several months. Officials say these steps would have to be accompanied by an appeal to the European Court: both to assert legality under crisis provisions of the Lisbon Treaty, and to sue the ECB for alleged "dereliction" of its treaty duty to maintain financial stability.

Mr Tsakalotos told the Telegraph that the creditors will find themselves be in a morally indefensible position if they refuse to listen to the voice of the Greek people, especially since the International Monetary Fund last week validated Syriza's core claim that Greece's debt cannot be repaid."

Now to the other side. European ministers are apparently flabbergasted at the watershed victory of the "no" campaign. They may be in shock and disbelief but are very much not in a hurry to act. Has Europe given up on the sick prodigal child whom has voted itself closer to officially leaving the family? We think so.

More from Reuters:

"There are no plans for an emergency meeting of euro zone finance ministers on Greece on Monday after Greeks voted overwhelmingly to reject the terms of a bailout deal with international creditors, a euro zone official said on Sunday.

Asked whether a meeting of the Eurogroup was planned for Monday, the official, speaking on condition of anonymity, told Reuters: "No way. (The ministers) would not know what to discuss.

Greeks cannot withdraw cash left in safe deposit boxes at Greek banks as long as capital restrictions remain in place, a deputy finance minister told Greek television on Sunday.

Greece's government shut banks and imposed capital controls a week ago to prevent the country's banks from collapsing under the weight of mass withdrawals.

Deputy Finance Minister Nadia Valavani told Alpha TV that, as part of those measures, the government and banks had agreed at the time that people would also not be allowed to withdraw cash from safe deposit boxes."

Greece Votes "No"

Update (451pm EST, Sunday): 100% of votes counted - 61.31% "no", 38.69% "yes" - Ministry Of Interior.

The "no" champaign in won in a landslide victory with more than a 20% lead over the conservative vote. The Greeks have certainly voted themselves into slot of trouble! Ministry Of Interior

The "no" champaign in won in a landslide victory with more than a 20% lead over the conservative vote. The Greeks have certainly voted themselves into slot of trouble!

Ministry Of Interior

Greece has officially voted to reject the terms of the latest EU bailout proposal in a landslide victory of "no" votes. European leaders and ministers are in disbelief and have expressed their disappointment in the ungrateful Greeks. 

Greece is now almost 40% into the full vote count and the "no" already leads by a 20% margin (60% vs. 39%). We were absolutely correct that a "no" vote would prevail, given how much propaganda and fear mongering conducted by a hypocritical Syriza government.

Syntagma Square is now teeming with the "oxi" votes, jubilant that they have written history on the 5th. Syriza remains deep in the hearts of young Greeks, some 66% of whom are unemployed and disenchanted with years of austerity.

We personally feel these celebrations are a tad too early to be called for, and the real chickens will come home to roost once the stoic week begins.

Every single state in Greece has voted no. 70% of all votes have been counted so far and it is a landslide victory for Tsipras and his grand gambit.  Ministry Of Interior

Every single state in Greece has voted no. 70% of all votes have been counted so far and it is a landslide victory for Tsipras and his grand gambit. 

Ministry Of Interior

Europe's largest bank Deutsche opines on the highly likely aftermath:

  • N1 – Soft deal: The most unlikely scenario is that the euro-area partners offer a much softer programme to Greece.
  • N2 – Default-and-stay: Moderately less unlikely is a scenario where Greece defaults but stays in the euro thanks to a direct recapitalisation of Greek banks by the euro-area partners, with the Greek government using only domestic resources for the country’s fiscal needs.
  • N3 – New deal: The third scenario is one in which the rising economic and political cost of a closed banking system results in the Syriza government being replaced by a new government of national unity and a new deal with creditors being reached.
  • N4 – Grexit: In our view, Grexit and Scenario N3 are the most likely – with about equal probabilities. That said, we see the probability of Grexit increasing the larger is the margin of victory of the NO vote. Even with a NO vote, the cumulative probability of the first three scenarios still exceeds that of Grexit.

Polls have now closed and majority of voters believe a "no" vote will prevail. It should take until midnight for all votes to be counted but the results will practically be made know in a few hours time.

  • A poll by GPO on Mega TV gave 51.5% in favor of “no” and 48.5% in for “yes”
  • Metron Analysis on Antenna TV showed “no” leading with 52% vs 48% for “yes”
  • MRB on Star TV showed “no” leading with 49%-54% vs 46%-51% for “yes”
  • Marc opinion poll for Alpha TV shows “no” ahead with 49.5%-54.5% vs 45.5%-50.5%

World, Markets Eyes Referendum Results

At 7am Greek time, the ballots boxes opened across Greece. In just under 5 hours time, a large enough sample of the binary votes counted should give us fair view of the balance.

It is pointless to speculate on the events that follow, as last week's episode taught us. What is of greater interest to us is the markets' reaction once forex and select U.S. futures markets open in the early hours of the Asian Monday.

Opinion polls as recent as yesterday showed that the margin between "yes" and "no" threads very thinly, making it almost impossible to bet on either sideHowever, the risks are asymmetric in our eyes.

Simplifying, a "yes" vote is the desired outcome for most, markets will be spurred on by risk appetite and rotations from liquidity and safety to risk. Expect the euro to sell off moderately and global stocks to rally.

The upside to a "yes" vote will be the anticipation of a finalized deal between Athens and the EU, ending a relentless bout of uncertainty. Analysts see things improving on the ground up if a "yes" vote has the majority.

The downside to a "yes" vote will obviously be the dissolution of the Syriza-led government, as PM Tsipras, Finance Minister Yanis Vafoufakis along wit other key figure heads have promised to resign if Greeks vote accept the terms of the EU's bailout proposal. The political upheaval will be an ugly one, but at least Greeks can look forward to withdrawing their money.

A "no" vote is what markets fear. Rejecting the EU's bailout proposal has the effect of cutting off all further negotiations. Athens will not receive fresh bailout funds. The ECB will likely impose stricter collateral rules on Greek banks in this scenario, as we have explained previously.

If "no" prevails, expect broad risk aversion when trading resumes on Monday. The euro should be bid while stock markets across the world will be in the red.

Ordinary Greeks are immense distraught, as this letter by a young Greek to the Financial Times shows:

"Memory. No memory of life before the financial crisis; politics has dominated it ever since. But now I can hardly remember life before Friday night. Fear. I am terrified of tomorrow, all I now see is black. Uncertainty, leading us through our days, every remainder of hope for a brighter future being destroyed by the minute. I look at my three-year-old niece, I envy her ignorance, I envy her age. I am 21 years old and the past few days I feel tired by life. A referendum that supposedly gives me the right to define my future, seems to have taken it away.
There are hundreds of people queueing at the ATMs and petrol stations, there is silence in the streets, people’s faces are frozen. This is the reality since Friday night. There are, and have been for a long time, people literally starving. However, it seems that instead of their situation improving, the rest of us will have no different a fate.
Families and friends divide in Yes and No camps. We are called to exercise our democratic right by voting on a referendum while having no tangible explanation of what will follow each decision. I see everyone I know ready to take this huge responsibility without even being prepared to do so. I notice us, arguing endlessly, everyone supporting their stance fervently, ego dominating minds and words, while having no clue as to what is really at stake.
We all want the crisis to end, we all crave growth and happiness. I do not remember my parents being free of stress and anxiety in the past years. I do not remember not noticing shops closing every month, or the rapid increase of beggars in the streets. People that, before the financial crisis, never had to beg for anything. However, the past five days have been worse than all that has been so far. They say that all we hear is propaganda; but we have lost our trust in all sides, now everything seems to be lies.
It feels like an end. The end of our lives as we knew them. Yes, the lives that, before Friday, we already thought could be better; now we realise they were better then. The only thing we truly wish for is that the worst is not yet to come." 

The Complete Greek Referendum Guide

This time last week there was still high hopes that Greece would sign a bailout deal with the Troika. Things take certainly gone down the drain in the past 7 days.

The biggest event Europe and perhaps the world will be facing is Sunday's national referendum where Greeks will vote if Greece should accept the EU's latest bailout proposal.

With the sheer amount of rhetoric and punditry going on as what the outcome might be, we thought we had rather stick to the facts and leave out the speculation.

Opinion polls carried out over the last 3 days have shown mixed results in favor of the “yes” or “no” vote to austerity commitments needed in return for aid.

What everyone is more or less certain about is that the stakes for both sides are very high and that anything but uncertainty is guaranteed.

Bloomberg has all the details for the entire event horizon:

WHEN ARE RESULTS DUE

  • Polling stations will be open from 7am to 7pm local time and the result may be known before midnight 
  • Pollsters haven’t confirmed if there will be exit polls; if there are any, they will come immediately after the polls close
  • Software distributor SinglularLogic, which has been hired to run the vote counting and data processing, should be able to provide an estimation of the winner a few hours after polls close
  • JPMorgan expects ~90% of votes will have been counted by midnight, based on past general elections in Greece; vote counting could be even faster this time as it’s a yes or no question

WHAT ARE GREEKS BEING ASKED TO VOTE ON

  • “Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Eurogroup meeting held on June 25 and which consists of two documents”
  • The government has been at pains to tell voters that  this isn’t a vote on euro membership but a vote on the terms of any bailout agreement
  • Greek Prime Minister Alexis Tsipras says he’ll sign a deal on Monday either with “yes” or “no” vote; not an option for Greece to leave euro
  • Finance Minister Varoufakis told Bloomberg TV it’s about “how to stay in euro” that he would resign if people vote “yes”
  • European officials have criticized the government for asking people to vote on a deal that is no longer on the table after the country’s bailout expired on Tuesday; don’t agree that “no” vote will facilitate Greek government’s negotiating position

WHAT DO THE POLLS SHOW

  • Opinion polls are mixed so far with a poll commissioned by Bloomberg News showing 43% intend to vote “no” and 42.5% backing a “yes” while 14.5% remain undecided; survey was conducted by the University of Macedonia Research Institute
  • An Alco survey for Ethnos Poll shows the “no” vote with 43.4% and “yes” vote with 44.8%
  • A ProRata poll earlier in the week said the “no” vote led while a GPO survey found 47.1% support for the “yes” campaign
  • Analysts for the most part still expect the “yes” to win out although JPMorgan says the initial polls surprised them, making an already uncertain outcome alittle more uncertain
  • Citigroup expects a “yes” vote but say public opinion will likely remain highly fluid and subject to events such as official statements and the degree of social unrest, if any
  • Eurasia says risk of a “no” vote is quite high at around 45% though still expect a “yes”

WHAT IF IT’S YES

  • If there is a yes vote, outcomes are ultimately likely to prove stabilizing but could remain chaotic for some time, JPMorgan says
  • Base case is Tsipras stands down and a national unity government is formed under technocratic leadership
  • Forming a new government won’t be easy, BoFAML says;  parties supporting “yes” camp hold only 106 seats; that suggest 45 MPs from the current govt would have to jump ship for a government to be formed
  • There are also technical issues about whether or not general elections could be organized in the middle of the summer, suggesting the country may be in limbo for at least a few more weeks
  • Citigroup analysts say securing a deal with creditors on Monday will be easier said than done, and negotiations could drag on for weeks, challenging efforts to reopen the banks
  • A ‘yes’ vote, followed closely by the resignation of Tsipras and Varoufakis is likely to be the most market-friendly outcome, Goldman Sachs analysts say

WHAT IF IT’S NO

  • Greek PM Alexis Tsipras said yday a “no” vote is decisive step toward a better deal, not a vote to leave the euro
  • Former Greek PM Kostas Karamanlis says a “no” vote on Sunday would lead to Greece’s expulsion from heart of Europe
  • A ‘no’’ vote would probably require a political intervention unlike any we’ve seen as yet to row back from Greek euro exit, JPM says
  • The dynamics of increasing banking and payments dysfunction would shorten the timescale for such an intervention to a handful of weeks at most
  • BofAML says wouldn’t expect the creditors to change their proposal; without new official funding, Greece will enter uncharted territory
  • Risk is Greek bank holiday lasts well beyond next Monday, BBH says; on a “no” vote, it’s clear the ECB would not increase ELA

HOW WILL MARKETS REACT

  • If the result is a “yes”, European equities are thought to be the asset class with most attractive risk reward, Barclays says
  • A “yes” vote should boost risk appetite and give investors more confidence that the Fed will hike rates later this year, Credit Agricole says
  • Expect USD to be among the main beneficiaries under this outcome; any relief rally in euro should be short-lived
  • A “no” vote will be a risk-negative outcome that will fuel Grexit fears; euro should fall, especially against the majors and market visibility will worsen significantly
  • It could take months before we know the ultimate fate of Greece; if hopes of a deal remain alive, markets may even return to their holding pattern after the initial sharp selloff

If All Else Fails, Cut The Deposits

Greece will commence its coveted national referendum in 1 hour. Stakes have never seen higher and risks never more acute.

A "no" decision would see Greece being isolated from the Eurozone and its creditors for an extended period of time, push the country even deeper into the twilight zone of bank holidays and starving citizens, heighten the possibility of social unrest and a revolt on its governance.

Greece is bankrupt, partially because it cannot get additional funding from the Troika. Bailout talks have screeched to a grinding halt. But is there another more cunning solution? 

There is, and we explain how below.

We would always remember Cyprus, the tiny European country pushed to the cusp of extinction when they were made to do the unthinkable. Have depositors bail-in the country's failing banks.

With so much talk about bailouts, we tend to forget that the possibility of bail-ins still exists. Bail-ins are generally thought to be infinitely more draconian than bailouts, because it signifies that the debtor has reached the point of no return where no creditor is willing to extend it help.

When an insolvent debtor gets bailed out, it receives external assets (cash) to meet its disproportionately large liabilities (debt obligations); hence the term bail "out". A bail-in happens when debtors take matters into their own hands and write off debt that they owe to their creditors, essentially unilaterally lessening their liability base.

What happened on Cyprus back in 2011 still sends chills down our back to this day. Depositors were forced to forgo a portion of their deposits as a measure mandated by the government to save their bankrupt banks.

Specifically, depositors of Cypriot banks who had deposits above a specified amount were told to take haircuts, thereby reducing the burden on the bank's balance sheets.

Could widespread bail-ins happen in the Hellenic Republic? It seemed far fetched to raise this question 1 month back when there were still hopes that Greece would be able to negotiate its way into getting another tranche of bailout money. Now, that anecdote has become all too relevant.

Earlier this week, the Financial Times reported that Greek officials were allegedly contemplating imposing haircuts on bank deposits over €8,000. This report was slammed by the Greek government with Finance Minister Yanis Varoufakis denying that it was true.

While nothing has yet been confirmed at this point, everything will hinge on today's referendum results. Because a "no" vote will also mean no bailout funds, no increase in the ECB's ELA cap to Greek banks, an extended bank holiday, and zero liquidity across all channels. When hubris devolves to desperation, a depositor bail-in becomes an appealing solution.

More from JP Morgan:

"If the deterioration in asset quality means there is no sufficient collateral to cover ELA claims, either the ECB (via its ELA residual claim) or domestic depositors will have to suffer a loss. Our understanding is that there are no clear rules on whether this ELA residual claim will be ranked above depositors or not. In fact EU policymakers adopted different and inconsistent approaches in the past when faced with bank insolvencies:

  1. In the case of Cypriot banks, depositors were hit while senior bond holders were spared, so seniority was not respected. ELA claims were also protected.
  2. Deposits of foreign branches were protected in the case of Cyprus while deposits of domestic branches were hit. This is the opposite of what happened to Iceland.
  3. In the case of Ireland, which also had a big banking system relative to the size of its economy, only sub debt holders, accounting for a very small portion of total creditors, were hit. No depositors were hit, in either domestic or foreign branches.
  4. In the case of SNS, sub debt holders were wiped out and reports suggest that the Dutch government came close to imposing losses on senior bond holders and was only prevented from doing so because of unsecured intergroup loans between SNS bank and Reaal insurance that would be subjected to the same losses as senior bond holders.

Under a stress scenario of prolonged impasse, Greek depositors will be likely hit while ELA claims are protected. There is currently €120bn of deposits with Greek banks. A haircut increase on ELA collateral assets from our currently estimated level of 43% to 60%, for example, would require a €26bn deposit haircut or 20% of outstanding bank deposits assuming for simplicity no available buffer from shareholders or bond holders. A bigger increase in the collateral haircut, for example to 75%, would require a €50bn deposit haircut or 40% of outstanding bank deposits.

Could deposits below €100k be protected as it happened in Cyprus? The answer depends on the total amount of deposits above €100k. If there are enough of these large deposits above €100k, then most likely any required deposit haircut will be inflicted on these depositors only. There are no recent data on how big this universe of large deposits is. The most recent data from the European Commission suggest that at the end of 2012, covered (i.e. those below €100k) represented 75% of eligible Greek deposits. We suspect this number is now significantly higher leaving little room for depositors with less than €100k to be spared. And the reserves that the Greek state has to back its bank deposit guarantee are miniscule, likely not more than a couple of billions euros."

Where A "Yes" Vote Blows Greece Up

Syriza has given its people an ultimatum.

  • Vote "yes" and we ensure Armageddon comes on Monday. 
  • Vote "no" and we keep the music playing and might even get the banks to reopen and money flowing again.
"Give me the money or I'll shoot" is how the Germans see Tsipras on his blackmail to the Greek people and to Europe as a whole. Pretty much says it all. Can you trust a man like him? Cover courtesy of Handelsblatt

"Give me the money or I'll shoot" is how the Germans see Tsipras on his blackmail to the Greek people and to Europe as a whole. Pretty much says it all. Can you trust a man like him?

Cover courtesy of Handelsblatt

Sunday's referendum isn't really a vote in the spirit of independent thinking. We have been almost too colloquial in ranting that the national referendum was an event with a planned outcome all along, and not one where Greeks could truly voice their opinions without centralized influence.

Why? Because in the last 4 days, the Syriza party led by Tsipras, whom we earlier called a hypocrite, was never shy about encouraging the populace to vote "no".

They did this by superlative propaganda; instigating that a "no" vote would give Athens renewed bargaining power on the table, and was not a vote on euro membership.

We have tirelessly criticized Tsipras' insidious tactics in the section just below this, titled "A Vote On Hypocrisy".

One more day, and the ante has once been upped. Along with Tsipras, Finance Minister Yanis Varoufakis now says he would quit his job if Greeks vote "yes" on Sunday.

This essentially means that if a "yes" vote prevails, the current Greek government (with a Syriza majority) would be no more, inciting an epic political upheaval at the worst possible time.

With both the heads of Tsipras and Varoufakis (and we suspect many more will join) under the guillotine, there is now an almost impervious impetus for the Greek people not to vote "yes", for fear of Greece plunging into its deepest crisis it has ever seen.

A "yes" vote has now become utterly scary, while a "no" vote seem too incentivizing to pass.

We'll let the world decide which side Greece votes for - democracy or hypocrisy.

More from Bloomberg:

"Yanis Varoufakis said Greece won’t “extend and pretend” that it can pay its debts, vowing to quit as finance minister if voters don’t support him in Sunday’s referendum.

With banks shuttered and Greece’s economy hobbled by capital controls, Varoufakis said in a Bloomberg Television interview in Athens that he would “rather cut my arm off” than sign a deal that fails to restructure Greece’s debt. The 54-year-old economics professor said he “will not” continue in his post if Greece endorses austerity in the plebiscite.

The minister’s comments illustrate the gulf between Greece’s government, which swept into office on a wave of discontent about budget cuts, and the creditors who are threatening to push it out of the euro. European governments led by Germany have condemned last weekend’s decision by Prime Minister Alexis Tsipras to pull out of talks and call a snap referendum on the conditions for financial aid. Polls suggest it’s too close to call.

Tsipras, Varoufakis and their Syriza party are urging Greeks to vote “no,” arguing that Greece can remain in the single currency on better terms if they do so -- a contention rejected by creditors. A “yes” vote could lead to the collapse of the Tsipras government and fresh elections, a possibility to which Varoufakis alluded.

“Maybe we’ll change the configuration of the government because some of us will not be able to stomach it,” said Varoufakis, adding he would help ensure a smooth transition."

A Vote On Hypocrisy

Despite perpetual blustery talk about the invalidity of Sunday's public referendum, the Greek PM Tsipras insists that his government will not back down and will hold what is being coined the 'most important referendum' for Greece.

However, as we noted almost 4 days ago, when Tsipras stepped on the EU's toes by rejecting their proposal for a del before the weekends, the referendum was invalid in a legal sense. This is something IMF head Christine Lagarde also mentioned on Monday.

Reason being the topic on which the Greek people will vote on pertains the details of the EU's bailout package proposal. Problem is that said bailout proposal had long ago been null after Greece's creditors folded on Saturday following Tsipras's referendum call. So are the Greeks voting for something that does not exist? It seems to be the case as there has been no official word on any changes made to the subject in question.

Regardless, the Greeks can do whatever they wish and still get away with it. They defaulted on the IMF to the tune of €1.56bn and nothing much really happened - no CDSs were triggered, and the markets did not plunge head first (and are in fact rallying).

There is something that has naggingly itched inside our heads for quite some time.

Just yesterday, we openly called Greece an "absolute hypocrite" because the Greek government (and its leader) has on countless occasions claimed something only to go back on those very claims.

Cases in point. Read on and see if we can be faulted for harboring our heavy criticisms:

  • By rejecting the EU's bailout proposal on Friday, Greece told the world it was not going to accept its creditor's terms at all costs. Greece also clearly stated that there will be no room for negotiations until Sunday's referendum had passed. However, Greece actually requested the ESM for a 2-year bailout on Tuesday, hours before the IMF payment was due. Direct evidence of hypocrisy.
  • By calling for a referendum, the Greek government told the world that it was turning to its citizens for consensus. However, just as everyone would have already realized, Tsipras and his fellows have been aggressively rallying the people to vote for a "no". What is then the point of calling for the public to vote independently when the government is actively calling for a biased outcome? Yet more hypocrisy.
  • Tsipras states that the referendum is a vote on the creditors' bailout proposal, and not on membership in the Eurozone. Since Tuesday, the Greek government has submitted 2 proposals to the ESM and the EU for consideration. Didn't Taipras say that there would be no negotiations before Sunday's vote, and that the people would have to decide if Greece accepts the troika's proposal? So why is Tsipras going out on a limb in submitting proposals before Sunday's vote? Is this not utter hypocrisy?

The only logical answer that squares all of these bewildering and confounding circles is that Tsipras and his party have been lying their way through Greece's crisis.

The referendum is not a vote on the troika's proposals. It is a vote on him and his party.

By promising to step down if his people voted "yes" to acceptance, he has essentially placed himself on the hook. This instantly connotes to ordinary Greeks that the radical left party that they have tried so hard to elect since December 2014, is now at risk of dissolution.

With this tingling sensation behind their throats, is is almost certain that the Greeks vote "no" on Sunday's referendum. Thereby defeating the spirit of independent discretion in such public referendums.

Critics, including us, will want to implore a hypocritical Tsipras to enlighten us on the real underlying intention of calling for Sunday's referendum.

We are not alone on our rant. Notable think tanks have also raised the specter of voting for a Grexit. We have more than ample evidence to suggest that the implicit intention of Sunday's referendum is for the people to vote for a Grexit, polar opposites to what Tsipras himself has publicly stated. More hypocrisy.

This morning, German Chancellor Angela Merkel addressed the German parliament. It seems that she knows about the insidious intentions of Tsipras but is keeping calm and playing along.

More from Bloomberg:

"“The door for talks with Greece was always open and remain always open. We owe that to the people and we owe it to Europe.”

“There can be no negotiations for a new credit program before the referendum.” 

“Greek people unquestionably confronting difficult days. Greece unilaterally ended debate on second credit program, failed to make IMF payment,” Merkel says

“Greece has legitimate right to hold referendum, euro states have right to respond.”"

As for the balance of powers between a "no" and "yes" vote, the devil is in the details. 

This time, it lies in Ireland's largest bookmaker, Paddy Power announcing early Wednesday that it will pay our 5 figures in winnings to gamblers who bet on a "yes" vote, that Greece will agree to the Troika's proposals and that there will be no Grexit.

So far, it seems as if Tsipras has had his way and is already victorious. It is rewarding to be a hypocrite during a crisis.

Specifically, Ireland's Paddy Power said in an emailed statement:

"Despite some polls suggesting it’s neck and neck, over the last few days we’ve seen enough to be convinced. In a race with two potential outcomes we’ve seen over 85 percent of money go one way and that’s massive.

Gambling companies routinely pay out early on sporting events when they regard the result as a foregone conclusion, in part because it draws publicity and in part because gamblers often recycle winnings into other wagers."

Reuters confirms that a "no" vote is the more likely of the two:

"Of those polled before the announcement of the bank closures, 57 percent said they would vote No against 30 percent for who would vote Yes. Of those polled after, the No's were at 46 percent against 37 percent for Yes. 

The poll showed support for 'No' strongest among voters of the ruling leftist Syriza party (77 percent), the far-right Golden Dawn party (80 percent) and the Communist KKE (57 percent). 

Support for 'Yes' was strongest among voters of the center-right New Democracy (65 percent), the pro-European centrist To Potami (68 percent) and the center-left Pasok (65 percent). 

The poll, by the ProRata institute, showed 86 percent of those surveyed planned to vote, with 50 percent backing Prime Minister Alexis Tsipras' decision to hold a referendum with 38 percent against.

No votes were strongest among the unemployed (62 percent), and more No votes than Yes were polled in all categories classified, comprising entrepreneurs, the self-employed, public and private sector pensioners and employees and housewives."

And as for the messy aftermath of the referendum of hypocrisy, Bloomberg has some ideas:

The schematics of Sunday's aftermath.  Chart courtesy of Bloomberg

The schematics of Sunday's aftermath. 

Chart courtesy of Bloomberg

"'No' Wins

If Greek citizens reject the creditors' proposal, an exit from the euro area would become the most likely scenario. An exit from the currency union has never happened before and there is no established process in the Europeantreaties. It could get messy. It's hard tosee how a deal could be found in thecontext of a No vote, with Greekauthorities coming back at the negotiation table with an even less conciliatorystance. Exasperation and fatigue are already running high on the other side of the table after five months of fruitless negotiations. Creditors are losing patience — and not only in Germany. If new negotiations were to fail, the Greek authorities could choose to leave the currency union directly or hold a new referendum on leaving. These two paths are surrounded by high uncertainty given the current state of the Greek economy, held in stasis by capital controls and bank holidays. Civil unrest would be likely.

'Yes' Wins

In this case, it is hard to see how Tsipras could stay in power since he is campaigning for No. In an interview yesterday, he said: "If the people vote yes, then the referendum outcome will be completely respected but I will not serve it". Fresh elections would probably follow, though he or Syriza representatives could try to strike a deal in the interim, to respect the people's decision. Talks could take a while, but having a majority of the Greek people on their side would give the creditors a stronger impetus to negotiate a new bailout. In this context, an ejection of Greece from the euro area — whoever triggered it — would be the worst possible scenario. With Greeks having effectively voted to find a way to stay in the euro, an exit would call into question the democratic foundations of the euro project itself."

When things get serious, a hypocritical politician and sheep-fleecing manic has to lie outright.

Moments ago, Tsipras addressed the Greek people on national TV, explicitly calling for a "no" vote in Sunday's referendum. As he and his government whipsaws around rejecting offers, submitting proposals, extending an olive branch to creditors every now and then, it all serves to delude and confuse.

Because as we have been reading, watching, and listening, no one really knows what the hell is going on in Athens, precisely what Tsipras wants.

From Bloomberg:

"Greek Prime Minister Alexis Tsipras called for voters to reject austerity measures in Sunday’s referendum to help end a standoff with creditors as the country gets a taste of financial meltdown.

It took a third day of capital controls, rationing pensions and the expiry of Greece’s bailout for the government in Athens to say it’s willing to accept his adversaries’ latest offer as a basis for compromise. The looming vote remains a stumbling block, along with disagreements over pensions, spending and taxes. 

Come Monday, the Greek government will be at the negotiating table after the referendum, with better terms for the Greek people,” Tsipras said in a Twitter message posted as he spoke on national television. “A popular verdict is much stronger than the will of a government.” 

The Greek premier spoke following a rhetorical exchange with his chief antagonists over a bid to revive negotiations. While Tsipras signaled he’s prepared to compromise on the starting point for talks, German Chancellor Angela Merkel, Europe’s dominant leader, refused to engage 

Merkel and her finance minister, Wolfgang Schaeuble, burned by five months of brinkmanship, said there would be no talks on a new bailout until after the July 5 vote. 

“There can be no negotiations for a new credit program before the referendum,” the chancellor told lawmakers in a speech opening a parliamentary debate on Greece. The country has provided “no basis for talking about any serious measures” to break the deadlock, Schaeuble told reporters. 

“The clock cannot be simply set back to where it was Friday night before Tsipras broke off the talks and called the referendum,” Holger Schmieding, an analyst at Berenberg Bank, wrote to clients. “A deal is still possible, but it would require more than just this letter.”"

IMF Prepared For Greek Write Down, You Should Too

After the ECB and the EU, the IMF is Greece's largest external creditor, one that Greece had defaulted on just this Tuesday.

Vociferous as the supranational institution may be against striking a deal which Greece that involved any concession deemed too draconian from a creditor's point of view, we have insight to how the talking heads at the IMF were actually thinking even before the latest debacle unfolded.

Namely, in a report prepared prior to Tsipras' call for a national referendum upcoming this Sunday, and way before Greece plunged into the twilight zone involving a week-long bank holiday, the IMF had contemplated scenarios whereby Greece's public debt load would need to be written off.

Such a scenario would occur, at least in the minds of IMF officials, when a deal which involved concessions made by Greece's creditors in the form of fiscal reform (aka austerity).

While such a deal has not been signed (yet), it seems more than likely that if the Greek populace were to vote "yes" on Sunday's referendum, against all odds and the aggressive propaganda to for a "no" vote, this very scenario could see the light of day.

The IMF's report outlines its mainstay position on EU creditors ultimately needing to writing down their Greek debt holdings, if the country could have any hope of returning to financial normalcy.

Said normalcy pertains to a reasonable level of public sector debt, most commonly measured by its debt-to-GDP ratio; Greece's now stands at a staggering 177.10% (2014), even after 2012's epic 70%+ haircut on non-common law government bonds held by private creditors.

From the IMF's report (pre-referendum call):

"Even with concessional financing through 2018, debt would remain very high for decades and highly vulnerable to shocks. Assuming official (concessional) financing through end–2018, the debt-to-GDP ratio is projected at about 150 percent in 2020, and close to 140 percent in 2022 (see Figure 4ii). Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30 percent of GDP would be required to meet the November 2012 debt targets.

With debt remaining very high, any further deterioration in growth rates or in the mediumterm primary surplus relative to the revised baseline scenario discussed here would result in significant increases in debt and gross financing needs (see robustness tests in the next section below). This points to the high vulnerability of the debt dynamics.

A lower medium-term primary surplus of 2½ percent of GDP and lower real GDP growth of 1 percent per year would require not only concessional financing with fixed interest rates through 2020 to cover gaps as well as doubling of grace and maturities on existing debt but also a significant haircut of debt, for instance, full write-off of the stock outstanding in the GLF facility (€53.1 billion) or any other similar operation.

The debt-to-GDP ratio would decline immediately, but “flattens” afterwards amid low economic growth and reduced primary surpluses. The stock and flow treatment, nevertheless, are able to bring the GFN-to-GDP trajectory back to safe ranges for the next three decades."

More from MNI:

"The report was drafted before the shutdown of the Greek banking sector and is dated June 26. Although the report has "not been approved (by the) IMF's Executive Board" it concludes that Greece has "substantial financing needs" which would render the debt dynamics unsustainable.

The report argued that any agreement for a softer reforms package such as lower primary surpluses, weaker structural reforms or lower than expected privatization revenues would make the haircuts on the debt "necessary."

"Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30% of GDP would be required to meet the November 2012 debt targets," it added."

The implications of this revelation is simple. If the IMF has realistically expected and planned for a write down in Greek debt, there is no reason why such a write down would seem beyond the scope of reasonable rumination.

It is therefore perhaps, that traders and investors should start to prepare themselves for this very "black swan" event - one that financial markets all over the world have been absolutely agnostic to. We have been warned.

Cashless & Naked

It is not the end of the story for the bastard child that is Greece. Having missed paying the IMF some €1.56bn, the country now risks loosing its lender or last resort, the ECB - an entity that has been instrumental to the going concerns of Greek banks; absent its help, most of Greece's banks would not be around today.

We explain below why the ECB now holds the fulcrum between keeping the can rolling down the road, and triggering a Grexit type or event.

Having launched its PSPP (QE) in January, the ECB has a lesser known facility in place specifically to keep struggling banks in the Eurozone's trouble states afloat. That facility is called the Emergency Liquidity Assistance (ELA).

Under the ELA facility, the ECB will lend to national central banks an amount of money based on how much collateral each bank pledges with the ECB. Such collateral often comes in the form of domestic government and municipal bonds.

Because of the risky nature of these government bonds, they are valued at a discount at the ECB to account for those inherent risks. In proper parlance, collateral is subject to haircuts of predefined percentage; fluctuating between 70% to 85% in Greece's case.

The idea is to ensure the haircuts are representative of both the deteriorating condition of Greece's banking sector and the decreased likelihood that Athens will reach a deal with its creditors.

Such risks have been heightened by a default to the IMF, and the apparent impasse between Greece and its creditors. Sunday's national referendum does not help.

It is understood that since Sunday, the ECB has stopped providing liquidity to the National Bank Of Greece, and hence Greek banks. The ECB's cap on Greece's ELA limit has not been raised, and has been fully exhausted at around €83bn.

This is the reason why Greek banks have and will remain closed for the whole of this week, and maybe even next. Greek banks just do not have the cash on their balance sheets, even though they may have additional unencumbered collateral in the form of defunct Greek government bonds (GGBs) .

The current concern is that the ECB might seek to impose stricter collateral requirements in lieu of recent developments which have all pointed to a significant atrophying of Greece's financial stability and position. 

In April when, on the heels of a nation-wide decree by the Greek government mandating that excess cash balances floating in the books of local governments be channeled to the Greek national bank. The ECB saw this as a step toward the right direction in bolstering Greece's empty state coffers and was considering easing collateral rules.

Bloomberg has the details:

"Haircuts could be returned to the level of late last year, before the ECB eased its Greek collateral requirements; set at 75 percent; or set at 90 percent. The latter two options could be applied if Greece is in an ‘orderly default’ under a formal ECB program or a ‘disorderly default.’"

Note the term "orderly default" under a formal ECB program. We wonder if the latest default on the IMF constitutes an "orderly default", although not under an ECB program, certainly an international one. 

If said default does constitute to a repudiating event, then it would mean that the old collateral rules under the ELA framework would need to be revised.

We can guess whether they will be revised to be looser or tighter. But for now, this is all thoughtful speculation. The ECB Governing Council will convene Wedneaday, potentially discussing this issue.

More from the Financial Times:

"When the Eurozone’s central bankers meet in Frankfurt on Wednesday, they could make a decision which some officials fear could push one or more of Greece’s largest banks over the edge.

The European Central Bank’s governing council is poised to impose tougher haircuts on the collateral Greek lenders place in exchange for the emergency loans. If the haircuts are tough enough, it could leave banks struggling to access vital funding.

The ECB on Sunday imposed an €89bn ceiling for so-called emergency liquidity assistance, effectively putting the Greek banking system into hibernation. If, to reflect the increased risk of default, the ECB now applied bigger discounts to the Greek government bonds and government-backed assets which lenders use as collateral, that could leave banks struggling to roll over those emergency overnight loans.

Some on its policy-making governing council feel that Athens’ exit from a programme — notwithstanding its 11th-hour request for an extension and third bailout — leaves the ECB with little choice but to take actions that would, in effect, cut the Bank of Greece’s emergency support to Greek lenders.

Some eurozone officials fear that the position at Greece’s biggest lenders is so tight the ECB could be in danger of pushing some weaker banks over the edge if tougher haircuts are imposed."

Greece Officially Defaults

      Few hours ago, the IMF confirmed that Greece had failed to make a payment that was due midnight on Tuesday. Missing the €1.55bn debt repayment meant a that Greece has become the first EU and "developed" country to ever default on the IMF, a default that is also the largest in history.

      From the IMF:

      "I can also confirm that the IMF received a request today from the Greek authorities for an extension of Greece’s repayment obligation that fell due today, which will go to the IMF’s Executive Board in due course."

      We were greeted with these headlines:

      • IMF SAYS GREECE FAILED TO MAKE PAYMENT DUE TUESDAY
      • IMF TO CONSIDER GREEK REQUEST FOR PAYMENT DELAY IN DUE COURSE
      • IMF BOARD INFORMED THAT GREECE IS NOW IN ARREARS
      A historic look at the defaulters on th IMF. Note that most of these nations were behind their payments for at least a year, averaging above 2 years for most. This list will need updating. Table from the IMF

      A historic look at the defaulters on th IMF. Note that most of these nations were behind their payments for at least a year, averaging above 2 years for most. This list will need updating.

      Table from the IMF

      We note that the IMF refuses to call the nonpayment a default, because doing so would be spitting at the very efficacy of Greece's bailout program, of which they were the chief architects.

      Rather, the fund choose to put Greece in arrears, major everything seem much lighter and less dire. In our eyes, a default is a default, however it is superficially called.

      So now that the sick prodigal basket case has default, what happens next? The key event headed our way will be the national referendum held on Sunday, in which there will either be a "yes" or "no" vote.

      The combinations and permutations of factors makes predicting the outcome almost impossible. However, the WSJ has a few ideas as to how things might turn out.

      An (overly) simplified schematic of the chain of possible outcomes after Sunday's national referendum. Chart courtesy of The Huffington Post

      An (overly) simplified schematic of the chain of possible outcomes after Sunday's national referendum.

      Chart courtesy of The Huffington Post

      From the WSJ:

      "1) Greece stays in the eurozone:This is the option likely to cause the smallest short-term disruption to the Greek economy.  The Greek central bank would retain access to liquidity from the European Central Bank, and the Greek banks would stay on life support. This looks increasingly likely to be accompanied by some kind of further negotiated debt relief. To get it, Greece would almost certainly have to agree to more conditions of the sort successive Greek governments have found it hard to accept.

      2) Greece keeps the euro, but sits outside the eurozone: Jacob Funk Kierkegaard of the Peterson Institute for International Economics in Washington calls this the “Montenegro option” and argues this is the most likely outcome should Greece exit the eurozone.  This would not be “a new drachma, but Montenegro—i.e. Greece becomes just another relatively poor unilaterally euroized non-EU Balkan economy,” he writes here. In some ways, this would be the worst of all worlds because Greece would lose access to the ECB. Countries using a foreign currency as legal tender have no access to a lender-of-last-resort, which means that every bank liquidity crisis becomes a solvency crisis. They therefore tend to have stunted domestic financial sectors — which almost every academic study shows is bad for growth — or have a banking system owned by foreigners, which exports the lender-of-last resort role to other countries’ central banks. (Mexico didn’t adopt the dollar after the 1994-95 financial crisis — but in order to avoid an undue shrinkage of its banking sector, it allowed most of its banks to be bought by foreigners.)

      3) A currency board: In this case, Greece would create a new currency but lock it to the euro  – as Estonia did with the German mark in 1992 after it gained independence from the Soviet Union. The amount of new drachmas in circulation would be limited by the size of Greece’s international reserves: about $5.8 billion at the last count. Advocates argue that this would impose discipline on the Greeks — poor economic policies lead to an outflow of reserves and therefore of the domestic monetary base, which pushes up drachma interest rates, while good policies have the reverse effect. The drawback is that again the central bank is limited in its lender-of-last resort powers because it cannot create money freely. It also imposes discipline that, for now, may make it look unappetizing to Greece’s current rulers. It’s not much talked about, has a few enthusiastic and long-standing cheerleaders, but is a theoretical possibility. Here’s Steve Hanke arguing in favor.

      4) A dual system: Here the drachma and the euro would circulate side-by-side. This has many historical precedents going back centuries. In practice, a dual system is likely to emerge when the Greek government runs out of euros and has to pay its domestic bills in government IOUs. The IOUs could at some future date be redeemed in euros, or could be eventually redeemed in drachmas, but they would initially be euro-denominated obligations of the government that would have a lesser value in the public mind than euro notes or coins. This state of affairs could continue for a long time, but there is an economic tendency called Gresham’s Law: ”Bad money chases out good.” Over time, euros would disappear from circulation because people would hoard them as a store of value  – and people would spend the government IOUs. De facto, the drachma, whether or not it would so be called, would become the main means of exchange.

      5) The new drachma: The move to the new drachma may well not come with a bang, but gradually — as described in 4 above. But an eventual formal switch of the currency would give Greece control over its own monetary policy.  However, a new currency — which would likely float against the euro and other major currencies — would likely create enormous short-term disruption, not least because a heavy devaluation would follow and the banks would in effect be insolvent.Longer-term, it could be a motor for future growth of the Greek economy — because it would stimulate demand for Greek exports by lowering in real-terms the price of goods and services produced in Greece.  Longer term, the effects of a devaluation depends on the quality of economic policies that accompany it. It will create inflation, by increasing the costs of imports. One important issue is how much the government raises wages and pensions to compensate for higher inflation. The more domestic wages and pensions are allowed to rise, the less impact the devaluation will have in simulating Greek exports longer term and the lower the benefits to economic growth."

      Greece Will Default On IMF Loan

      Update: It's coming, and there's nothing nobody can do to reverse the terminal roll down. Brace! 

      • GREEK FINANCE MINISTER SAYS GREECE WILL NOT PAY IMF ON TUESDAY
      • TOO LATE TO DISCUSS GREEK PROGRAM EXTENSION: GERMAN OFFICIAL

      Some accused us of fear mongering when

      we first titled this piece "Greece Prepares To Default" on Friday. We spoke about it all that way back in December last year, we spoke about it when Syriza won a majority in parliament, and we certainly spoke about it in the beginning of June - which was when the seeds of today were sown.

      It is now not yet official, but from what we are reading, Greece has no choice but to default on today's €1.5bn payment to the IMF.

      Greece is now officially bankrupt with empty state coffers and banks that are closed for the entire week because they just do not have the cash to meet withdrawal demands. There is also some rather hilarious talk they might have trouble finding enough money to hold Sunday's referendum.

      Several Greek officials have told international media that the government will not be able to meet today's payment to the IMF; and in less than 12 hours, speculation will become reality.

      What we have not heard though, is from the IMF themselves. No one doubts that the IMF are at the edges of their seats. They have not uttered official word about how they are going to deal with Greece's non payment, if they will treat it as a default or induce some workaround solution to give the prodigal country even more grace.

      What we are pretty much certain about, is that there will be no room for negotiations between debtor and creditor until Sunday's referendum, which we called "moot".

      This means that for the next 5 days at least, there will be lots of jostling and harsh language used by both sides. Markets are not going to like it.

       More from the WSJ:

      "Greece won’t make a debt repayment to the International Monetary Fund due Tuesday, a senior Greek government official said Monday. 

      Earlier this month, Greece had notified the IMF it plans to bundle its loan repayments falling due this month into one payment of around 1.6 billion euros ($1.7 billion), which is due Tuesday.

      The IMF has said that Greece will immediately be in arrears if it fails to make the debt repayment."

      Greece Becomes A Hypocrite

      8 hours before defaulting on the IMF, Greece goes full retard by becoming an absolute hypocrite.

      The PM's office requested a 2-year bailout package, financing and debt restructure from the European Stability Mechamism (ESM).

      • GREECE ASKS FOR 2-YR BAILOUT PROGRAM FROM ESM: PM'S OFFICE
      • GREECE ASKS FOR FINANCING, DEBT RESTRUCTURING: PM'S OFFICE
      • GREEK GOVT WILL SEEK VIABLE AGREEMENT WITHIN EURO: PM'S OFFICE

      The statement from the Greek PM's Office, reeking or arrogance and nonchalance:

      "The government will fight for a viable deal until the end and within the euro. This will be the message of the No vote. We will say No to a bad deal on Sunday. From the first moment we made clear that the decision to conduct a referendum is not the end but a part of the negotiation for better terms. Greece remains at the negotiating table."

      German Chancellor Angela Merkel has promptly said nein to Greece idiotic request. All we can say is "wow"! Not only is Greece a hubristic and shameless beggar, it is also a hypocrite.

      We wonder how the international press can continue to take seriously a government that just 3 days ago rejected all of the EU's bailout proposals, blatantly chooses to default on a €1.5bn debt repayment, and now decides it wants to be bailed out after inciting fever-pitched volatility across the world's financial markets. Incredulous.

      Tsipras must be high and totally delirious.

      More from Bloomberg:

      "Greek govt submitted request to European Stability Mechanism today for a two-year agreement, which will fully cover country’s financing needs and includes debt restructuring at the same time, according to an e-mailed statement from the PM’s office.

      Greek govt will strive for a sustainable agreement within euro area; that will be the message of a No vote to a bad deal in Sunday’s referendum Referendum isn’t the end of negotiations, but the beginning of talks under better terms for the Greek people; Greece remains at the negotiating table.

      It’s quite surprising that there are new proposals coming out of Brussels,” says Volker Kauder, parliamentary leader of German Chancellor Angela Merkel’s party.

      “Things haven’t changed: Greece has broken off negotiations, there will be a referendum and the second aid program is expiring tonight.”

      German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece would stay in the euro for the time being if Greek voters reject austerity in a referendum scheduled this week, according to three people present.
      Schaeuble also said the European Central Bank would do what’s needed to protect the euro if Greeks voted against the bailout terms in the July 5 referendum, according to the people, all of whom participated in the closed-door meeting on Tuesday.
      They asked not to be identified, citing the private nature of the discussion. The German Finance Ministry declined to comment."

      A Saddening Situation

      Greek pensioners scrambling and fighting to get their payouts from some 1,000 bank branches that briefly opened on Wedneaday, 12 hours after Greece became the first EU nation to default on the IMF. Photo courtesy of AFP

      Greek pensioners scrambling and fighting to get their payouts from some 1,000 bank branches that briefly opened on Wedneaday, 12 hours after Greece became the first EU nation to default on the IMF.

      Photo courtesy of AFP

      Around 1,000 Greek bank branches opened on Wednesday, but only for a brief period to provide graying and starving pensioners an opportunity to get some cash. The government had earlier limited pension withdrawals to €240, but most pensioners who were able to actually get into the banks' branches only managed to get just half that.

      As one journalist commented, the situation is extremely sadddening; people have to fight over money they were entitled too all along.

      More from Bloomberg & AFP:

      "It’s a day of fresh indignities for the people of Greece.

      About a third of the nation’s depleted banks cracked open their doors after being closed for three days. But all they did was ration pension payments, hours after the country became the first advanced economy to miss a payment to the International Monetary Fund and its bailout program expired.

      On the third day of capital controls, a few dozen pensioners lined up by 7 a.m. at a central Athens branch of the National Bank of Greece, an hour before opening time. They were to receive a maximum of 120 euros ($133), compared with the average monthly payment of about 600 euros. Many left with nothing after the manager said only those with last names starting with the letters A through K would get paid.

      “Not only will I have to queue for hours at the bank in the hope of getting 120 euros, but I’ll have a two-hour round trip,” said Dimitris Danaos, 77, a retired local government worker who was making the bus journey from his home outside the Greek capital to the suburb of Glyfada.

      In chaotic scenes, thousands of angry elderly Greeks on Wednesday besieged the nation’s crisis-hit banks, which have reopened to allow them to withdraw vital cash from their state pensions.

      “Let them go to hell!” said one pensioner waiting to get his money, after failed talks between Athens and international creditors sparked a week-long banking shutdown.

      The Greek government, which closed the banks and imposed strict capital controls after cash machines ran dry, has temporarily reopened almost 1,000 branches to allow pensioners without cards to withdraw 120 euros ($133) to last the rest of the week.

      The move has again sparked lengthy queues at banks across Greece — and outrage from many retirees who are regarded as among the most vulnerable in society, exposed to a vicious and lengthy economic downturn.

      Under banking restrictions imposed all week, ordinary Greeks can withdraw up to 60 euros a day for each credit or debit card — but many of the elderly population do not have cards.

      Another customer, a retired mariner who asked not to be named, told AFP he had no cash to buy crucial medicine for his sick wife.

      “I worked for 50 years on the sea and now I am the beggar for 120 euros,” he said.

      “I took out 120 euros — but I have no money for medication for my wife, who had an operation and is ill,” he added."

      Greece Doesn't Want A Grexit

      Having ensured that the negotiating table will remain empty until next Monday at the earliest, the Greek government has once again pulled another shameless punch, this time directly at the European Comission.

      Greece is inarguably a beggar. But it is not just that. It is also a shrewd, hubristic chooser, because it thinks it is morally justified to demand things get done its way when it has absolutely no right to bargain.

      Its economy may be a wash, its people disillusioned into believing they are being led by people what have their interests at heart. Nothing could be more distant from the truth. And said truth be told, the Greeks are good at one thing: Manipulating Europe's technocrats to do its bidding.

      A Grexit will not merely cause deep financial pain, it is a deeply symbolic gesture that the Euro project has failed one of its member states. Conservative and protagonists will never accept the prospect of a Grexit, something that reeks of anarchy and insult to the founders of the single currency bloc.

      Greece is threatening to raise an injunction via the European Court Of Justice, protecting the country against being ousted from the currency union. Earlier in the week, Tsipras had rallied Greek citizens to vote "no" in the upcoming referendum, saying it would give Greece a better negotiating position. 

      Let us get this straight. Greece was the one that turned down the EU's proposal for a bailout extension, and said that they had ceded enough of their sovereignty to their creditors. It also did so in the rudest possible manner.

      The implicit purpose of the referendum was and is for citizens to vote themselves out of the Eurozone by a rejection of the bailout deal in question, all by popular consensus. Tsipras has made it apparently clear that he doesn't like to be in the Eurozone.

      And now he goes full retard by completely flipping positions, asking not to be removed from the Eurozone. Greece has lost all credibility in our eyes.

      More from the Telegraph:

      "Greece has threatened to seek a court injunction against the EU institutions, both to block the country's expulsion from the euro and to halt asphyxiation of the banking system.

      “The Greek government will make use of all our legal rights,” said the finance minister, Yanis Varoufakis.

      “We are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable,“ he told the Telegraph.

      The defiant stand came as Europe’s major powers warned in the bluntest terms thatGreece will be forced out of monetary union if voters reject austerity demands in a shock referendum on Sunday.

      Any request for an injunction against EU bodies at the European Court would be an unprecedented development, further complicating the crisis."

      Global Markets Deep In Red Spasms

      Implied volatility on global equities has spiked by the most across the spectrum of assets, as was to be expected given their benign nature of trading leading up to the current fiasco. Chart courtesy of Zero Hedge

      Implied volatility on global equities has spiked by the most across the spectrum of assets, as was to be expected given their benign nature of trading leading up to the current fiasco.

      Chart courtesy of Zero Hedge

      Update (230pm EST, Wednesday)Global equity markets (ex. China) have seen a burst of buying as they rally to near where they closed at last Friday. EuroStoxx and Dax are up by sizable amounts, the euro is lower, German bunds have been offered, the yen has also been offered.

      Volatility is falling across most asset classes. Clearly a re-risking trade which we have discussed previously - risk assets are sought while safe havens are sold out of. Whatever the catalyst, the market's certainly don't seem too bothered about Greece's default on the IMF; perhaps because the IMF doesn't consider it a default but behind in "arrears".

      All we can say is don't get too caught up in a rally fueled by nothing more than hope and optimism.

      Update (310pm EST, Tuesday): 2 hours before the 30 June deadline for Greece to pay €1.5bn to the IMF, markets are pretty much dead apart from what we like to call the chops. Behind the door, under the carpet talks of whatever new bailout package from the ESM be damned, because default it is. It is pointless to talk about market trajectories now.

      "The chops" as we like to call it, pretty much says it all...  Chart courtesy of Zero Hedge

      "The chops" as we like to call it, pretty much says it all... 

      Chart courtesy of Zero Hedge

      European financials have absolutely collapsed although they have come off their lows. Greece's stock market will remain closed throughout the week, a handy way of "shielding" Greek banks from the reality that is confronting the rest of Europe and the world.  Chart courtesy of Zero Hedge

      European financials have absolutely collapsed although they have come off their lows. Greece's stock market will remain closed throughout the week, a handy way of "shielding" Greek banks from the reality that is confronting the rest of Europe and the world. 

      Chart courtesy of Zero Hedge

      Update (1020am EST, Monday): European financial stocks crucified. The U.S. traded ETF "GREK" is down more than 17% in New York and so are European banks. Reports of some Italian banks ceasing to even trade shows just how dire the straits are. 

      Despite all this, euro crosses are broadly higher, bolstered by central bank buying (SNB & Buba), flight to liquidity and hope that Greece will find a way out besides defaulting. 

      Update (8am EST, Monday): Rapid decline in euro leads Swiss National Bank (SNB), and Jordanain central bank to intervene. SNB intervened because Swiss franc was seeing too much demand as a safe haven.

      Many euro crosses have rallied to filled their respective gaps and were at some point in time, at Friday's closing levels. We do not know what prompted the massive surge to unchanged or higher but we feel the euro should be much lower. 

      German stocks opened almost 7% lower on Monday before rebounding strongly. As of now, there have been no news pertaining to matters in Greece or the Eurogroup. Chart courtesy of Zero Hedge

      German stocks opened almost 7% lower on Monday before rebounding strongly. As of now, there have been no news pertaining to matters in Greece or the Eurogroup.

      Chart courtesy of Zero Hedge

      Update (430am EST, Monday): European open saw EuroStoxx 50 plunge by more than 7% at its lows. In the core, the French CAC 40 is deepest in the red, followed by Germany's DAX 30; Italian and Spanish stocks are down much more.

      German 10-year bund yields fell by 27bp at Monday's European open as risk assets are sold and safe haven assets are sought after. Government bonds in Switzerland, Sweden, Norway, the UK, and France are also trading higher. This is the de-risking trade we spoke about in our primer we put out last week, where obvious rotations across asset classes and geographies happen. Chart courtesy of Zero Hedge

      German 10-year bund yields fell by 27bp at Monday's European open as risk assets are sold and safe haven assets are sought after. Government bonds in Switzerland, Sweden, Norway, the UK, and France are also trading higher. This is the de-risking trade we spoke about in our primer we put out last week, where obvious rotations across asset classes and geographies happen.

      Chart courtesy of Zero Hedge

      Bund yields have fallen dramatically while risk premiums in the periphery have risen significantly. U.S. treasury curve has also fallen while Japanese JGBs and the yen remain well supported.

      Not surprisingly, the euro started to find bids coming into the open as the de-risking trade we mentioned in our primer last Thursday played out almost like clock work.

      Ultimately, all the market wishes to know at this juncture is whether Greece will default on its €1.5bn debt repayment to the IMF tomorrow, what possible actions could the IMF possibly take to prevent a disorderly event.

      As things currently stand, Greece will not receive cash to meet tomorrow's obligation. There is a sense of apprehension, no one is really willing to jump the gun by calling for an outcome.

      Although a far cry from Greece, there has been strong risk aversion to Italian, Portugese, and Spanish government debt (often referred to as the periphery) . The market clearly fears that the Greek fire spreads across the weaker member states of the Eurozone, although officials have reaffirmed that adequate firewalls are ready in place. Chart courtesy of Zero Hedge

      Although a far cry from Greece, there has been strong risk aversion to Italian, Portugese, and Spanish government debt (often referred to as the periphery) . The market clearly fears that the Greek fire spreads across the weaker member states of the Eurozone, although officials have reaffirmed that adequate firewalls are ready in place.

      Chart courtesy of Zero Hedge

      Update (1210am EST, Monday): Markets already staging some retracements with euro pulling back on some 30% of initial losses. Weakest cross remains EURJPY with massive strength in the yen as safe haven flows dominate.

      Global equity markets are deep in red as expected. China is down huge despite the double rate cut over the weekend, Greek contagion is far from contained and is spreading quickly.

      With no progress on any last minute deal, expect heavy selling when Europe opens in a few hours.

      Greece is weighing heavily even on Asian markets. China is down by up to 7% today despite the PBoC cutting 2 interest rates over the weekend. All Chinese bourses are in bear markets now. Greek contagion is spreading fast across global financial markets. Chart courtesy of Zero Hedge

      Greece is weighing heavily even on Asian markets. China is down by up to 7% today despite the PBoC cutting 2 interest rates over the weekend. All Chinese bourses are in bear markets now. Greek contagion is spreading fast across global financial markets.

      Chart courtesy of Zero Hedge

      Quotes of euro crosses very early in Sunday's illiquid trading. Chart by Business Of Finance

      Quotes of euro crosses very early in Sunday's illiquid trading.

      Chart by Business Of Finance

      Update (620pm EST, Sunday)Post open picture is a sea of red and panic. SPX futures down nearly 50 points, Dow futures down 330 points, EURJPY down a staggering 420 pips on euro weakness and massive yen strength. All euro crosses gapped lower anywhere from 150 to 400 pips.

      Risk is totally off, one can only imagine what happens when Europe opens for trading in a little less than 8 hours. It is tough to speculate how markets will trade when there are gaps that make up a few day's movement.

      Update (340pm EST, Sunday): Very early into illiquid forex trading and we are looking at quotes that imply anywhere from a 100-160 pip drop in the euro.

      Honestly, we were expecting more but wait till more liquidity comes in in about half an hour.

      EURUSD gaps 150 pips lower before catching a bounce under the 1.1 big future. Safe haven currencies including the Swiss franc and yen are well bid, dollar is bid as well. Chart courtesy of Zero Hedge

      EURUSD gaps 150 pips lower before catching a bounce under the 1.1 big future. Safe haven currencies including the Swiss franc and yen are well bid, dollar is bid as well.

      Chart courtesy of Zero Hedge

      Equity markets that are actually open over the weekends in the Middle East are down more than 3% from Friday's close, and indication of what is to come when screens begin to light up across the world's trading desks.  Chart courtesy of Zero Hedge

      Equity markets that are actually open over the weekends in the Middle East are down more than 3% from Friday's close, and indication of what is to come when screens begin to light up across the world's trading desks. 

      Chart courtesy of Zero Hedge

      As we pen this update, we are less than 2 hours before the first global markets (forex & futures) open for electronic trading. We anticipate a brutal sell off at the open with prices forming huge gaps from Friday's close.

      The euro should be the hardest hit, and the dollar will be very well bid as risk aversion becomes the central theme for next week's uncertainty. U.S. equity futures (which will start trading at 4pm EST, Sunday) should also trade significantly lower.

      Note that the Greek markets will most likely be closed at least for Monday and that the rest of Europe only begins trading at around 330am EST, Monday. Expect selloffs in most if not all European bourses, of which the UK's should be most isolated (but still in red). More market updates will be posted.

      Now Or Never For Grexit

      Regular readers will know that we have been very vocal about the unsalvageable state Greece finds itself in, likening the entire edifice to a basket case of the most ludicrous proportions.

      Ever since the Greek people voted Syriza into power, we have envisaged this day of reckoning. It was not a matter of if but when. 

      The time might be now. It may really be different this time. Whatever the outcome, the world is watching with their fingers crossed because "Plan B" is expect to be next in the cards. "Plan B" is usually disorderly and acutely painful.

      Restless citizens, sick and tired of bearing austerity's brunt, led by a party whose promise was to liberate ordinary Greeks from pain and hardship they have endured for the last 3 years, might choose to seize this opportunity to vote themselves out of the single currency bloc once and for all.

      And there is ample intuitive impetus for Greeks to go in this direction - away from what staunch Eurocrats have been proposing. Years of budget cuts, tax increases, social unrest, political wrangling, financial crises after crises, have all been for naught as Greece is still mired in its deepest recession and highest unemployment since it joined the Eurozone almost 15 years ago.

      Those so called structural reforms have obviously not worked to stabilize Greece's fragile banks and financial institutions. Every additional bailout agreement that Athens signs with the Troika fuels animosity between deplored Greeks and its creditors.

      A Grexit now is the easiest and least painful way in the long run, at least in the minds of most Greeks. If not now, then never.

      Referendum Called, But Is Now Moot

      Earlier on Friday, creditors had presented Greece with a new proposal which entailed extending the current bailout term for 5 months on top of €15.5bn in additional disbursements - bailout funds from the EFSF, SMP profits, and the IMF. If agreed to, Greece would receive the cash it needed to meet the €1.5bn IMF payment due Tuesday.

      That never happened. Tsipras immediately rejected the proposal, commenting that Greece will not make further concessions and will stay true to the European value of solidarity, and upholding Syriza's promise to its people by not further ceding to the "provocative" demands of its creditors.

      Instead, in a post midnight state address in national TV, Prime Minister Alexis Tsipras called for a referendum to be held on 5 July (next Sunday) where citizens will vote on whether Athens should accept the terms of the EU's latest bailout proposal.

      What Greeks are being asked to vote for: 

      "Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Eurogroup meeting held on on June 25 and which consists of two documents:
      The first document is called Reforms for the Completion of the Current Program and Beyond and the second document is called Preliminary Debt Sustainability Analysis.
      - Those citizens who reject the institutions’ proposal vote Not Approved / NO.
      - Those citizens who accept the institutions’ proposal vote Approved / YES."

      Below are some opinions by notable figures on the referendum call:

      Panagiotis Lafazanis, Greek Energy Minister, head of the Left Platform movement of Syriza:
      "[The referendum] will open the road for a new future for the country... whether to live better or not. Greek people are aware of difficulties of a new starting point, they’re ready to support new national effort.""Greeks are being asked to vote whether the country should be a colony, or not, of creditors."
      Antonis Samaras, main Conservative opposition leader:
      "Mr Tsipras has led the country to an absolute impasse... Between an unacceptable agreement and leaving Europe."
      Alexander Stubb, Finnish Finance Minister:
      "We’re basically closing the door for any further negotiations. Plan B is fast unraveling and becoming plan A. We cannot extend the program as it stands. There is nothing else on the table. We will have to see what the next step entails for Greece."
      Jerome Dijsselbloem, Eurogroup President:
      "[Greeks] seem to have taken a negative stand on the last proposal by the three institutions, and basically reject those proposals. That is a very sad decision, because the door in our mind was still open to finalize talks. And now, given their decision, they are now proposing to hold a referendum, again with the negative advice to the Greek people, and that is a very sad situation. We will hear from the Greek minister today whether all of this is correct, whether we understand that correct, and then we will talk about the consequences that will have."
      Wolfgang Schauble, German Finance Minister:"
      We no longer have a basis for negotiation. We actually came today to try to negotiate a unified position with Greece, but the Greek government, if I understand it correctly, has unilaterally ended the negotiations. We have to look at what the situation is. The program ends on June 30. We know the situation with the Greek banks. That’s an issue of talks between Greece and the ECB. But we’ll also discuss that. But right now we have to discuss everything, that’s why we’ve agreed to meet this afternoon."
      Van Overtveldt, Belgian Finance Minister:
      "We don’t have three weeks, but three days. So that is something that everybody and the Greek government should be aware of. They have wasted so much time in the last weeks and now we have come to the point that we have just three days left. We can no longer prolong whatever action we want to take, because June 30 is there, it is very much there. June 30 is the end of the program. We will have to decide on issues today."

      EU Rules Out Bailout Extension

      The Eurogroup was swift to react to Tsipras' nuclear option that is the referendum call. They simply called off all discussions which could have possibly provided Greece with a few more day's grace so it could at least deliver on Tuesday's IMF payment.

      But no. European officials were so appalled and some even furious at Greece's unilateral decision to place stakes on a binary option of either a "Yes" or "No" vote, that they bailed out (pardon the pun) entirely on the talks.

      There was supposed to be a Eurogroup emergency meeting on Saturday afternoon which would involve Greece, but that was made redundant as the meeting went ahead without Greece at the table. As seen by the various comments by notable figures in the previous section, most European leaders are very displeased that Greece decided to turn the tables.

      Why? Because what Greece essentially did was to impose an ultimatum on the Eurogroup - that it had to at least grant Greece 5 more days of a bailout extension so that its people could vote on whether Greece would accept or reject its proposal. As it turned out, it was a comical case of shooting itself in the Achilles heel, and at the worst possible moment.

      As of Saturday evening (CET), Greece's bailout program will expire on 30 June (Tuesday), and there will be no further extensions nor postponement of the IMF payment.

      Referendum On Deal That Is No More

      As was originally planned, the referendum was on the subject of extending Greece's bailout program. Now that there will not be any extension, as we have heard from the horse's mouth, we are curious as to what the referendum will be for.

      Quite an oxymoron really. A public vote on something that now does not exist.

      What could happen in its place, might be a change in question to "should Greece leave or stay in the Eurozone". Which would make it a direct Grexit vote. Although this seems far fetched for now, when anything goes when push comes to shove, and when mayhem dawns upon the financial markets and Greek banks come Monday.

      ECB Expected To Pull Out Too

      Update: ECB says current ELA to Greece will be maintained at current levels (that of 26 June). Some respite to all that bad news.

      From the ECB:

      "The Governing Council of the European Central Bank today welcomed the commitment by ministers from euro area Member States to take all necessary measures to further improve the resilience of euro area economies and to stand ready to take decisive steps to strengthen Economic and Monetary Union.
      Following the decision by the Greek authorities to hold a referendum and the non-prolongation of the EU adjustment programme for Greece, the Governing Council declared it will work closely with the Bank of Greece to maintain financial stability.
      Given the current circumstances, the Governing Council decided to maintain the ceiling to the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on Friday (26 June 2015).
      The Governing Council stands ready to reconsider its decision.
      Mario Draghi, ECB President, said: “We continue to work closely with the Bank of Greece and we strongly endorse the commitment of Member States in pledging to take action to address the fragilities of euro area economies.”
      Yannis Stournaras, Governor of the Bank of Greece, said: “The Bank of Greece, as a member of the Eurosystem, will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances."
      The Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area. The Governing Council is determined to use all the instruments available within its mandate."

      The BBC reported that the ECB, the lender of last resort for Greek banks, is expected to cut lending to private banks via its ELA program on Sunday. In recent weeks, ELA ceilings for Greece have gradually risen to replenish capital outflows as local depositors withdraw their money at the fastest pace since 2012.

      More from the BBC:

      "The European Central Bank is expected to end emergency lending to Greece's banks on Sunday, the BBC understands.
      The country's banks depend on the ECB's Emergency Liquidity Assistance (ELA). Its governing council is meeting later.
      Greece will probably have to "announce a bank holiday on Monday, pending the introduction of capital controls", a source told the BBC's Robert Peston.
      Greek banks would find themselves in serious straits as soon as Monday if the ECB went ahead and cut the lifeline, the BBC economics editor says.
      Capital controls are restrictions on how much customers can withdraw from banks. Until now, the Greek government has signalled that it does not want to impose such controls.
      In recent weeks, Greeks have withdrawn billions of euros from banks, and long queues formed at cashpoints on Saturday, amid fears that banks would not open on Monday.
      The ECB has been sending emergency funds on a daily basis to the Greek central bank, which then allocates it to the high-street banks."

      Reuters on the ECB's decision to freeze Greece's ELA limit despite mounting panic that could well turn into a bank run. As of now, a bank holiday is almost guaranteed: 

      "The ECB had made it difficult for the banks to open on Monday because it decided to freeze the level of funding support it gives the banking system, rather than increasing it to cover a rise in withdrawals from worried depositors.
      Amid drama in Greece, where a clear majority of people want to remain inside the euro, the next few days present a major challenge to the integrity of the 16-year-old euro zone currency bloc. The consequences for markets and the wider financial system are unclear.
      The head of Piraeus Bank, one of Greece's top four banks, speaking after a meeting of the country's financial stability council, said banks would be shut on Monday.
      I want him (Tsipras) to knock his fist on the table and to say 'enough!'," said resident Evgenoula.
      Long lines formed outside many ATMs on Sunday, including some of 40 to 50 people outside some in central Athens.
      The Bank of Greece said it was making "huge efforts" to ensure the machines remained stocked."

      Greek Indebtedness

      Do not for once assume that once Tuesday's €1.5bn repayment to the IMF is settled (which by the looks of it, won't happen), Greece is debt free and will live to tell another tale of how it was maligned by those nasty European technocrats.

      A little digging reveals the inconvenient truth about how deep the basket case nation is wadding in debt. In our books, it is above neck line and will soon be above the nostrils - after which the inevitable happens.

      Greek loans that are due in 2015. The €1.5bn IMF repayment seems all but a quaint bush in a thicket. The €2.1bn due to the ECB on 17 July seems scarier. Chart courtesy of the WSJ

      Greek loans that are due in 2015. The €1.5bn IMF repayment seems all but a quaint bush in a thicket. The €2.1bn due to the ECB on 17 July seems scarier.

      Chart courtesy of the WSJ

      The Troika, made up of the ECB, European Union, and the IMF, remains Greece's largest creditors and have been at the heart of recent diatribes. Apart from that, there are the international creditors a lá Greek bond holders, a majority of whom are actually within the European monetary union.

      The 2012 flashbacks of how Greek bond holders suffered a 70%+ haircut on their principal reminds us that debtors can be insidious in their own ways of bending light through the mirrors of law and jurisdiction.

      The saga that happened 2 years ago means that no one really buys Greek debt without an expectation of a default at their back of their heads.

      A detailed breakdown of Greek obligations till August. The ECB remains its largest creditor.  Chart courtesy of the WSJ

      A detailed breakdown of Greek obligations till August. The ECB remains its largest creditor. 

      Chart courtesy of the WSJ

      But back to the question of who Greece owes money to, the answer is just about everyone in Europe, and including Greeks themselves. If we wanted to talk about unofficial debt such as unfunded liabilities owing to its very own demanding pensioners, whom were so generously endowed in the past, the mountain then becomes virtually unscalable.

      And how does Greece repay all of its debt? To us, such a question is besides the point; Greece will never be able to settle at debt organically. When we say organically, we are simply referring to debt settlement without incurring more debt.

      The proverbial consumer who pays off his credit card debt by tapping another credit card is precisely what Greece has been doing. The layers upon layers of bailout funds that have been extended to Greece constitutes as debt themselves. The Troika doesn't dispense free money.

      Greece has been surviving on philanthropic loans, loans which it has used to repay other maturing loans. The job of the government then becomes to acquire more loans to keep the music playing and the facade hanging. 

      Organic means of raising revenue are a taboo amongst Greeks. They range from plundering pensions, increasing just about every tax rate possible, axing just about every public employee, and reducing government spending to the extent only vital government functions remain operational. The Greeks hate it, and there can be no hope of it ever working. Ever.

      Needless to say, we should expect the vicious cycle to continue perpetually until something snaps. Something such as a Grexit, or perhaps a default. 

      More updates as they come...

      Compliation Of Headline Bulletins

      In no chronological order:

      • A poll by GPO on Mega TV gave 51.5% in favor of “no” and 48.5% in for “yes”
      • Metron Analysis on Antenna TV showed “no” leading with 52% vs 48% for “yes”
      • MRB on Star TV showed “no” leading with 49%-54% vs 46%-51% for “yes”
      • Marc opinion poll for Alpha TV shows “no” ahead with 49.5%-54.5% vs 45.5%-50.5%
      • RUSSIA URGES EU TO RESPECT GREECE'S CHOICE IN REFERENDUM: RIA
      • RUSSIAN ENVOY SEES NO THREAT OF GREEK EXIT FROM EURO AREA: RIA
      • COMPREHENSIVE DEBT OPERATION IS REQUIRED TO RETURN GREECE TO ECONOMIC HEALTH
      • GREECE NEEDS EITHER A DEBT WRITE-DOWN OR MATURITY EXTENSIONS UNDER LATEST CREDITOR PROPOSAL
      • GREECE'S ADDITIONAL FINANCING NEEDS THROUGH 2018 TOTAL ABOVE EUR60 BILLION
      • GREECE'S YEAR-AHEAD FINANCING NEEDS ALONE TOTAL EUR29 BILLION
      • CAPITAL CONTROLS ARE LIKELY TO PUSH UP FINANCING AND DEBT RELIEF NEEDS
      • "IMPERATIVE" EUROZONE COVERS AT LEASE EUR36 BILLION IN FINANCE UNDER HIGHLY CONCESSIONAL TERMS
      • IMF PROPOSES EXTENDING GREECE'S DEBT MATURITY TO 40 YEARS FROM 20 YEARS CURRENTLY
      • TO MEET THE 2012 DEBT-SUSTAINABILITY TARGETS FOR GREECE, EUROPE WOULD HAVE TO WRITE DOWN DEBT BY 30% GDP
      • GREECE'S DEBT IS UNSUSTAINABLE WITHOUT DEBT RELIEF UNDER EUROZONE'S LAST GREEK BAILOUT OFFER
      • EUROZONE MUST PROVIDE DEBT MATURITY EXTENSION "AT A MINIMUM"
      • GREEK DEBT-SUSTAINABILITY REVIEW ASSUMES LONG-TERM AVERAGE REAL GDP GROWTH OF 1%
      • LONG-TERM AVERAGE REAL GDP GROWTH OF 1% FOR GREECE MAY BE OPTIMISTIC
      • A LOWER BUDGET TARGET THAN LAST GREEK CREDITOR OFFER WOULD REQUIRE EUR50 BILLION DEBT WRITE-DOWN
      • A LOWER BUDGET TARGET THAN LAST GREEK CREDITOR OFFER WOULD ALSO NEED CONCESSIONAL FINANCING THROUGH 2020
      • EVEN WITH DEBT RELIEF, LAST CREDITOR BAILOUT OFFER WOULD STILL SEE GREECE'S DEBT RATIO AT 142% GDP THROUGH 2022
      • IMF ASSUMES GREEK GDP GROWTH OF 0% IN 2015, 2% IN 2016 AND 3% IN 2017
      • A GROWTH SHOCK WOULD SPIKE GREECE'S DEBT RATIO TO 200% OF GDP IN 2017
      • DIJSSELBLOEM SAYS GREEK POLITICAL GROUNDS HASN'T CHANGED
      • DIJSSELBLOEM SAYS GREEK GOVT AMENDED PROPOSALS FROM CREDITORS
      • DIJSSELBLOEM SAYS EUROGROUP TOOK NOTE OF GREEK PROPOSALS
      • DIJSSELBLOEM SAYS SEES NO GROUNDS FOR FURTHER GREECE TALKS
      • DIJSSELBLOEM SAYS WILL BE NO TALKS IN COMING DAYS
      • DIJSSELBLOEM SAYS WILL WAIT FOR OUTCOME OF GREEK REFERENDUM
      • DIJSSELBLOEM SAYS WILL TAKE INTO ACCOUNT OUTCOME OF SUNDAY VOTE
      • DIJSSELBLOEM SAYS HE IS VERY SORRY ABOUT GREECE SITUATION
      • TSIPRAS SAYS REFERENDUM NOT ABOUT EURO OR NOT EURO
      • TSIPRAS CALLS FOR `NO' VOTE IN JULY 5 REFERENDUM
      • GREECE RECEIVED BETTER PROPOSALS FOR DEBT AFTER REFERENDUM CALL
      • IF POSITIVE DEVELOPMENT IN EUROGROUP WE WILL RESPOND: TSIPRAS
      • TSIPRAS SAYS EUROPE SHOULD GIVE TIME AND SPACE TO GREEKS
      • TSIPRAS SAYS CREDITORS SHIFTED BLACKMAIL FROM GOVT TO CITIZENS
      • WE WILL RESUME TALKS ON MONDAY
      • IF EUROGROUP APPROVES DEAL WE’LL RESPOND ACCORDINGLY
      • REFERENDUM IS FOR THE A APPROVAL OR NOT OF DEAL
      • GOVERNMENT STILL WANTS DEAL WITH CREDITORS
      • REFERENDUM NOT FOR STAY OR NOT IN EURO
      • TSIPRAS SAYS GOVT FIGHTING TO PROTECT PEOPLE'S PENSIONS
      • TSIPRAS SAYS NO VOTE IS DECISIVE STEP TOWARD BETTER DEAL
      • GERMANY WON'T COMPROMISE AT ALL COSTS
      • DON'T NEED TO FEAR EZ ECO CATASTROPHE FROM GREEK CRISIS
      • MERKEL: EUROPE IS MUCH STRONGER THAN 5 YEARS AGO
      • REFERENDUM IS LEGITIMATE RIGHT OF GREECE. GERMANY WILL AWAIT RESULTS OF REFERENDUM
      • DOOR FOR TALK WITH GREECE OPEN
      • EURO ZONE SOURCE SAYS TSIPRAS LETTER CONTAINS ELEMENTS MINISTERS WILL FIND HARD TO ACCEPT
      • SCHAEUBLE SAYS SECOND LETTER FROM TSIPRAS HAS ACHIEVED NO CLARITY
      • SCHAEUBLE: TALKS BEFORE GREEK REFERENDUM MAKE NO SENSE
      • SCHAEUBLE SAYS ACCORDING TO IMF RULES, GREECE IS INSOLVENT, IMF CAN NO LONGER PAY OUT AID
      • SCHAEUBLE SAYS SEES NO UNCONTROLLABLE RISKS TO GERMAN BUDGET DUE TO CURRENT DEVELOPMENTS, INCLUDING FROM GREECE
      • SCHAEUBLE SAYS NOTHING CHANGED IN FACT THAT THERE WAS NO AGREEMENT BETWEEN GREECE, CREDITORS BY MIDNIGHT
      • SCHAEUBLE SAYS OLD EFSF PROGRAMME FOR GREECE HAS EXPIRED, NOW A NEW ESM PROGRAMME WOULD BE NEEDED WITH DIFFERENT CONDITIONS
      • SCHAEUBLE SAYS THERE IS NO BASIS TO HAVE SERIOUS NEGOTIATIONS WITH GREECE AT MOMENT
      • SCHAEUBLE SAYS GREECE HAS TO MAKE CLEAR WHAT IT WANTS
      • SCHAEUBLE SAYS WE ARE IN A COMPLETELY NEW SITUATION WITH GREECE, WE ARE ALWAYS READY TO TALK
      • IMF SAYS GREECE FAILED TO MAKE PAYMENT DUE TUESDAY
      • IMF TO CONSIDER GREEK REQUEST FOR PAYMENT DELAY IN DUE COURSE
      • IMF BOARD INFORMED THAT GREECE IS NOW IN ARREARS
      • EFSF CONFIRMS GREECE FINL ASSIST PROGRAM EXPIRED TUESDAY
      • EFSF: GREEK AID EXPIRATION MEANS LAST AID TRANCHE UNAVAILABLE
      • EFSF SAYS REMAINING BANK-RECAPITALIZATION FUNDS TO BE CANCELED
      • SCHAEUBLE SAID TO SAY GREECE MAY BE ABLE TO TAP EU SUPPORT FUND
      • SCHAEUBLE SAID TO SEE GREECE STAYING IN EURO EVEN IF 'NO' VOTE
      • GREECE ASKS FOR 2-YR BAILOUT PROGRAM FROM ESM: PM'S OFFICE
      • GREECE ASKS FOR FINANCING, DEBT RESTRUCTURING: PM'S OFFICE
      • GREEK GOVT WILL SEEK VIABLE AGREEMENT WITHIN EURO: PM'S OFFICE
      • Dijsselbloem Cancels TV Interview Due to Urgent Obligations
      • Greek Govt Cancels Press Briefing Citing Emergency Meetings
      • U.S. STOCK INDEX FUTURES PARE GAINS SLIGHTLY FOLLWING GREEK FINANCE MINISTER'S COMMENT THAT GREECE WILL NOT PAY IMF ON TUESDAY
      • GREEK FINANCE MINISTER SAYS GREECE WILL NOT PAY IMF ON TUESDAY
      • TSIPRAS: REFERENDUM PROVIDES STRONGER NEGOTIATING POSITION
      • TSIPRAS: CREDITORS’ PLAN IS NOT TO THROW COUNTRY OUT OF EURO
      • TSIPRAS: COST OF THROWING COUNTRY OUT OF EURO AREA IS ENORMOUS
      • TSIPRAS: GREECE WILL NOT BE THROWN OUT OF EURO, COST TOO GREAT
      • GREEK OFFICIAL: 700 BANK BRANCHES TO OPEN THIRSDAY FOR PENSIONS
      • GREEK PENSION WITHDRAWALS WILL BE LIMITED TO €240: OFFICIAL
      • GREEK BANKS TO REMAIN CLOSED UNTIL JULY 6 : KATHIMERINI
      • GREEK GOVERNMENT ISSUES CAPITAL CONTROLS, BANK HOLIDAY DECREE
      • GREEK GOVT LIMITS CASH WITHDRAWALS TO €60/DAY AS OF JUNE 28
      • GREEK CAPITAL CONTROLS INCLUDE LOCAL BRANCHES OF FOREIGN BANKS
      • GREEK GOVT SETS UP COMMITTEE TO APPROVE PAYMENTS ABROAD
      • GREEK PRIME MINISTER SAYS GREEK PEOPLE SHOULD REMAIN CALM
      • GREEK PM: BANK OF GREECE PROPOSED BANK TRANSACTION RESTRICTIONS
      • GREEK PRIME SAID GREECE RE-APPLIED FOR BAILOUT EXTENSION
      • GREEK PRIME MINISTER SAYS DEPOSITS ARE COMPLETELY SAFE
      • GREEK BANKS TO REMAIN CLOSED FROM MONDAY FOR A WEEK: PIRAEUS BANK CEO
      • PIRAEUS BANK CEO THOMOPOULOS SPEAKS TO REPORTERS IN ATHENS
      • ECB SAID TO SEE EXISTING GREEK ELA INADEQUATE FOR BANKS' NEEDS
      • ECB SAID TO VIEW BANK HOLIDAY FOR GREECE AS NECESSARY
      • ECB takes note of decision on Greek referendum and the non-prolongation of the EU adjustment programme
      • ECB will work closely with Bank of Greece to maintain financial stability
      • Emergency liquidity assistance maintained at Friday’s (26 June 2015) level
      • Governing Council stands ready to review decision
      • Governing Council closely monitoring situation and potential implications for monetary policy stance
      • Official that Greek banks and financial markets will be closed on Monday.
      • Athens Stock Exchange will not open on Monday, financial industry source.
      • Not yet officially declared, but Greek bank holiday highly likely on Monday, according to private sources.
      • Official ECB statement says Greek ELA will maintain at current levels, no cut.
      • BBC reports that the ECB will cut lending to Greek banks via its ELA program on Sunday, says bank holiday and capital controls likely.
      • Greek parliament voted 179-120 in favor of a referendum to be held 5 July. This is despite creditors affirming that Greece's bailout package will expire Tuesday, 30 June.
      • DIJSSELBLOEM SAYS `GREAT CONCERNS WITH CREDIBILITY' OF GREECE
      • DIJSSELBLOEM SAYS REST OF EUROGROUP REGRETS GREEK REJECTION
      • DIJSSELBLOEM: SITUATION IN GREECE WILL DETERIOATE IN BETWEEN
      • DIJSSELBLOEM: THE PROGRAM WILL EXPIRE ON TUESDAY NIGHT
      • *VAROUFAKIS: CREDITOR OFFER LACKED HOPE FOR INVESTORS, CONSUMERS
      • *VAROUFAKIS SAYS GREECE FIND ITSELF AT `HISTORIC MOMENT'
      • *VAROUFAKIS SAYS CREDITOR AID OFFER WAS RECESSIONARY
      • *VAROUFAKIS SAYS CREDITOR AID OFFER `BAKED IN' NEW AID PROGRAM
      • *VAROUFAKIS: CREDITOR OFFER LACKED HOPE FOR INVESTORS, CONSUMERS
      • *VAROUFAKIS SAYS GREECE FIND ITSELF AT `HISTORIC MOMENT'
      • *VAROUFAKIS: GREEK GOVERNMENT HAD NO MANDATE TO ACCEPT AID OFFER
      • *VAROUFAKIS SAYS GREEK GOVERNMENT DETERMINED TO FIND A SOLUTION
      • *VAROUFAKIS: CREDITORS INSISTED ON PREVIOUS AID FORMULA
      • *VAROUFAKIS: EUROGROUP VETO OF PROGRAM EXTENSION DAMAGES EUROPE
      • VAROUFAKIS: `HIGH PROBABILITY' OF YES VOTE WITH LONGER PROGRAM
      • *VAROUFAKIS: IF GREEK PEOPLE `TELL US TO SIGN, WE WILL SIGN'
      • *VAROUFAKIS: GREEK REFERENDUM ISN'T ABOUT EURO MEMBERSHIP
      • *VAROUFAKIS: GREEK-AID PROGRAMS HAVE BEEN `QUITE CLEAR FAILURES'
      • SCHAEUBLE SAYS DOING EVERYTHING POSSIBLE TO AVERT MARKET UNEASE
      • *PADOAN: INSTRUMENTS IN PLACE TO COUNTER POSSIBLE CONTAGION
      • *DIJSSELBLOEM: OUR INSTITUTIONS ARE PREPARED TO TAKE ANY ACTION
      • *STUBB: "I DO NOT SEE A RISK OF CONTAGION"
      • *SCHAEUBLE SAYS WE'LL DO EVERYTHING TO FIGHT CONTAGION THREAT
      • *PADOAN: IF INSTABILITY, ECB HAS INSTRUMENTS TO INTERVENE
      • *PADOAN: "AT THIS POINT WE HAVE A CRISIS SITUATION''
      • *SCHAEUBLE SAYS GREEK DECISION WILL RESULT IN DAYS OF UNQUIET
      • ITALY'S PADOAN: "EURO AREA IS VERY STRONG."
      • SCHAEUBLE SAYS EURO ZONE IS STABLE, REMAINS STABLE
      • *NOONAN: THE CRISIS HAS COMMENCED
      • *SCHAEUBLE SAYS `HELLISH DIFFICULT TASK' ON GREECE
      • *NOONAN: I HAVE SYMPATHY FOR THE GREEK PEOPLE
      • TSIPRAS SAYS REFERENDUM WILL BE MOMENT OF TRUTH FOR CREDITORS
      • TSIPRAS: GREEK PROPOSAL FOR SUSTAINABLE DEAL STILL ON TABLE
      • TSIPRAS SAYS REFERENDUM NOT MEANT AS RUPTURE WITH EUROPE
      • TSIPRAS SAYS GAME OF BAILOUT HAS COME TO AN END
      • GREEK PARLIAMENT TO RESUME IN 10 MIN AHEAD OF REFERENDUM VOTE
      • SAMARAS SAYS REFERENDUM DRAGS COUNTRY OUT OF EUROPE
      • SAMARAS SAYS CREDITORS DISCUSSING PLAN B FOR GREECE
      • STATE MINISTER PAPPAS SAYS GOVT STILL AIMING FOR AGREEMENT
      "Take that, Merkel!" 

      "Take that, Merkel!" 

      Who do you trust? The Eurocrats or a hypocritical Greek government? 

      Who do you trust? The Eurocrats or a hypocritical Greek government?