The current state of affairs in the Greece’s drama makes Grexit slightly more likely than the alternative of Greece staying in the Eurozone.
The Greek Parliament has just approved the Referendum proposed by Prime Minister Tsipras for voters to approve or reject the creditors’ proposal on July the 5th. Now the unfolding of events looks like the following.
a) Greece will not be able to repay the Euro 1.6b IMF loan expiring on June 30th. Before Greece is declared insolvent, a procedure will start whereby the IMF Board will notify Greece the missed payment and there will be between 15 and 30 days before a default is formally declared.
b) In the next hours/days, the ECB will have to decide whether to extend the Emergency Liquidity Assistance (ELA) to Greece until July 5
c) Greeks will vote on the Referendum on that date.
The picture below shows how things may evolve.
The first crucial decision is for the ECB to extend ELA to Greece until the date of the Referendum. My subjective evaluation is that this will occurr with probability 70%. If this will not occur, Greek banks will not be able to sustain a bank run and the Bank of Greece will have to introduce capital controls and a new currency, leading to Grexit.
If ELA is extended, then voters may either reject or accept the EU agreement. My subjective evaluation is that, given ELA extension, they will accept with probability 70%. If instead voters will say no to the plan, ELA will stop and Grexit will follow. Summing up the probabilities gives 0.51 (= 0.3 + 0.7×0.3) as the total Grexit probability.
Obviusly, Grexit probability is higher the lower the probability of ELA extension by the ECB and the higher the probability of a “no” vote in the referendum.
