Our base case is that the pressures coming from a dysfunctional banking system in Greece will shorten the time horizon to negotiate a deal to a handful of weeks."
"As that pressure builds, there is likely to be a temptation to call a referendum in Greece on euro membership, and for the state to begin issuing I-O-Us or similar and giving these some status as legal tender."
"To the extent that pensioners and public sector employees find themselves being paid with such instruments, it takes the banks further away from solvency (they have liabilities in euros, but will have loans to individuals being paid or receiving “i-o-u” s which will be worth a lot less)."
"Meanwhile, we expect at least some countries in the rest of the region (not least Germany) will not hurry over the design of a new program, and will find it difficult to get parliamentary assent for any such program.
"This is a path that suggests to us that there is now a high likelihood of Greek exit from the euro, and possibly under chaotic circumstances."
"Perhaps the rest of the region will agree to a reasonably quick deal, or the ECB will raise ELA enough to retain minimal viability in the payments system."
"Perhaps the pressures of dysfunctional banks will force Mr Tsipras to stand down, and a deal is subsequently made. But for now, we would view a Greek exit from the euro as more likely than not."
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