All the politicians in Greece (even the mainstream ones) have said they want to renegotiate the bailout agreement.
If the rest of Europe doesn’t back down and agree to this, then the ECB will have to make a huge decision.
Unless Greece chooses to leave the Euro area, which we doubt will happen, a Greek exit will require the rest of the re-gion to push the country out. The mechanism for this will be the ECB excluding the Greek central bank from TARGET2, the regional payments and settlement system. Although this might look like a technical decision about monetary plumb-ing, the ECB will elevate this to the Euro area heads of state. It will be the most important political decision since EMU’s launch.
And this was from Jefferies’ David Zervos earlier this week…
Basically, the decision to lock the Greeks out of the Target2 is the single most important decision that will be made in the history of EMU. Can Europe send 65b to Greece to recap the banks when after they vote down the MoU? Can Europe stand idly by when Tsipras calls for an OSI on the 240b of debt held by the ECB and IMF. Can Europe watch Tsipras hire 100,000 civil servants? And the real question is – can Europe continue to watch Greeks pull Euros out of the banks, thereby taking the Eurosystem Target2 exposure to 150b, 200b and then 250b without cutting off the BoG?
Two people on Wall Street saying something identical? It’s obviously a very big deal.