Macro Digest: This is now officially a Greek tragedy

• There are no winners from this Greek tragedy; only losers

• Grexit has now become the base case scenario

• Illiquidity is now the big risk

By Steen Jakobsen

In many ways, it is relatively easy to understand why the result was a No from Greece. There was very little to lose, as a Yes to more austerity hardly was a great choice for a society on the brink of social break down.

The vote clearly was not helped by the fact that the actual vote: Yes or No was confusing. What did they actually say No to?

This does not change what I firmly believed: that is, that Greece would say yes and unseat a government that is more interested in its own survival than the country’s destiny. What comes next politically is difficult to predict but markets are slightly easier:

• DAX will open down 5% – again – and probably lose 10% during next few weeks unless the ECB and Fed does a repeat of 2010-11 plunged protection teams

• The Club Med spreads will rise 20 to 50 basis points over the next few weeks…

• Bulgaria, Croatia, Romania should see considerable spread increases

• EURUSD – that is the difficult one: I expect a weaker open, but if… Greece is actually going to leave the euro, then it will be stronger by the end of week. For now I expect 2%-5% range the first 24 hours to 48 hours (Early Sunday night indication points to: 1.0990/1.1000 (i.e. down 120 pips)

Compared with CNBC’s prediction: Greek nays have it; how markets will react.

The real risk remains the illiquidity of the market. Do not forget that through government intervention (quantitative easing) in the bond market there is no two-way market. No market makers and no risk capital (due to capital requirement and regulation).

The big other risk is that banks will NOT reopen despite the assurances by Greek government on Tuesday. Will it lead to 30% haircut on depositors as FT wrote over the weekend?

Comments are fast and furious – many gloating and playing games, but where is the long-term solution?

The solution where Greece gets a haircut but also make real commitments to redefining a new Greece. Syriza showed how powerful it is in an environment of “pretend-and-extend” from Europe, but the same “pretend-and-extend” is now dead. The change of macro policies always comes from failing. This is one of the biggest failings in Europe history.

The Plan A was to do pretend-and-extend. Plan B was to use “carrot and sticks” – and Plan C – was not to have a plan! Having no plan is not a plan, as it’s pretty obvious now, but its good news in the sense that someone now needs to own up to the loss, which has been moved forward and forward with no reforms, no structural changes and with no hope.

Zero hope, Zero reform and Zero willingness to change equals Greece of tomorrow, with no access to finance, very few friends and a future which is, if possible, is even more dire.

Tragedy without solution

Europe on the other hand also lost – my classic argument since day one: The Greek tragedy is one without solutions. No winners, only losers. Europe looks inflexible and stubborn. Clearly, us finance people understand and mostly agree with the medicine prescript, but at all times any policy needs to embedded in democracy and in the ability of carrying through on the plan. Europe, as often before, did not fail but played for broke.

Syriza and Greece, however, probably lost more. The mere idea they will have a new deal in 24 hours is pure fantasy as it has been every week when finance minister Varoufakis promised us a plan 'by next week'.

Like Europe, however, Greece does not have a Plan B or Plan C. All it has is rhetoric – which reminds me of Eastern Europe before 1989.

I love sports analogies as much as most people hate them: This is a football match being played without referees and rules now. Either team can claims to have won: Greece is claiming they made the highest amount of free kicks and that three free kicks against them equals a goal for Greece, while the EU and ECB claim the fact they had more corners than Greece make them the winners. The point of course with no rules and no referees, it's anybody’s call, but of course, in a regular match these two sides drew nil-nil.

To show how the two sides continues to ignore them both have lost, here are a few headlines:

Hardly, if you read official Europe quick response and put it in the context of the comments and front pages before the referendum:

Then The Guardian front page the other day: Hardly an open invitation!

Not that Bild is Germany, but 89% say no.

Anyone who thinks German finance minister Wolfgang Schäuble is unpopular needs to reads this German-language article in the Frankfurter Allgemeine: Alle hassen Schäuble, niemand hasst Deutschland (Everyone hates Schäuble, one hates Germany).

The first bank to comment: JP Morgan base case is now Grexit.

This, however, is what we should be talking about: A Greece that lost it ways and sees no alternative to “revolution”…

The IMF opened a new “flank” with a dose of reality.

Conclusion:

• Consensus is surprised by election

• Illiquidity is the big risk

• Grexit is now the base case

• There is 25% chance of Europe finding the “geopolitical situation” so important that they extend help to Greece despite harsh words – but still 75% against

• Market will see 5% drop in equities, 20-50 in fixed income spread expansion, Eastern Europe will hurt more, uncertainty has increased (which markets never like), Greece banks will most likely remain closed, EURUSD should drop 2-3 figures at the most, and it is a screaming buy, now we have “reality” vs. talk, talk

Pretend and extend has now died. Hopefully it has been replaced with a normal business cycle, normal ebbs and flows. But first politicians will try to save face by trying to do just one more rounds of pretend-and-extend, but the patient has died.