What happens if Greek voters say “no” to the terms of the bailout?
This is The Sizemore Investment Letter’s analysis of the possible outcomes:
- A “No” vote will mean that aid from the various organs of the European Union would immediately cease, forcing Greece into a “hard” default rather than the negotiated “voluntary” restructuring. Though it would be unprecedented and there is no process in place for it, Greece would most likely be expelled from the euro zone and quite possibly the European Union itself.
- A “Yes” vote might preserve the fragile status quo. But at this stage, it might not matter. Papandreou’s move confirms Northern European (and primarily German) worst fears about Greece’s credibility as a negotiating partner. Good faith has been shattered, and European leaders will not not risk embarrassment by trusting Mr. Papandreou or his successors again.
- The referendum might not happen at all. Mr. Papandreou’s own party is in open revolt over his unilateral decision and is demanded that he resign. Of course, a snap election would throw additional political uncertainty into the mix, which–again–points towards an unruly hard default.
The next 24 hours will be telling. If Papandreou resigns and is replaced by a “national unity” government, there is an outside possibility that last week’s deal can be cobbled back together. But at this point, it is more likely that Greece is thrown to the wolves and left to fend for itself.
If Europe’s leaders move quickly and send an unambiguous message that the crisis stops with Greece, Europe can avoid a meltdown. But it will involve a rigorous implementation of the remaining planks of last week’s agreement. The European Central Bank will have to step in to support the Italian bond market and to act as a lender of last resort to Europe’s banks. And the monies that were to be used to prop up Greece should be used to support Europe’s banks, which will still need to be recapitalized.
In the meantime, get ready for more volatility. And you can forget about the “risk on” trade that I mentioned last week. While I recommend using any volatility as an opportunity to accumulate high-quality European and American dividend payers that will survive Armageddon–crème de la crème blue chips like Sizemore Investment Letter recommendations Unilever (NYSE: $UN), Telefonica (NYSE: $TEF) and Nestle (NYSE: $NSRGY)–I cannot in good faith recommend more speculative sectors like financials or commodities. And once the dust settles–which might be a while–you might also revisit those Three Greek Stocks to Consider AFTER a Greek Default.
Hang on tight, dear reader. 2011 promises to have a wild finish.
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About the author:Charles Lewis Sizemore is the Editor of the Sizemore Investment Letter premium newsletter and Chief Investment Officer of Sizemore Capital Management.
Mr. Sizemore has been a repeat guest on Fox Business News, has been quoted in Barron’s Magazine and the Wall Street Journal, and has been published in many respected financial websites, including MarketWatch, TheStreet.com, InvestorPlace, MSN Money, Seeking Alpha, Stocks, Futures, and Options Magazine and The Daily Reckoning.