3 Things To Focus On As Greek Crisis Escalates - Deutsche Bank

There have been three major developments on the Greek crisis over the last forty-eight hours, notes Deutsche Bank.

"First, the Eurogroup meeting yesterday confirmed that the EFSF Greek loan program will expire on June 30th, without an extension...Second, the government's referendum proposal yesterday passed through parliament with the support of the governing coalition as well as extreme-right Golden Dawn. The vote will take place on Sunday July 5 th...Third, the ECB has today decided to cap ELA provision to Greek banks at Friday's level," DB clarifies.

A critical week begins: 3 things to focus on:

First, the ECB reaction function: "We would consider an ongoing ELA cap (possibly with increased haircuts) as the most likely outcome over the course of the week," DB argues.

The second factor to watch will be ongoing Greek domestic political developments: "It is important to note however that the government's stance towards the creditors is becoming increasingly critical, with the re-introduction of the term "Troika" in the political narrative being a notable example. The extent and direction to which the electorate apportions responsibility for recent developments therefore remains an open question," DB notes.

Third, the IMF and European political reaction function over coming days will be important as well. "It is likely that IMF managing director Lagarde notifies the board of a failure to pay event in the days after a non-payment on Tuesday. Whether the EFSF board subsequently decides to accelerate Greece's loans on the back of cross-default loan provisions will be a political, rather than a financial decision signaling a further escalation of pressure from the European side. We would consider more likely that the EFSF board refrains from exercising until after the referendum outcome is due," DB adds.

"In sum, a new chapter of uncertainty has opened up with the Greek crisis. More clarity on the eventual outcome is unlikely until the following Sunday and likely beyond," DB concludes.