Greece is facing a lose-lose situation.
In a note to clients on Sunday, Daniele Antonucci at Morgan Stanley wrote that there really aren’t any good outcomes from the Greek referendum scheduled for next Sunday.
On July 5, Greek citizens will vote on whether to accept the latest terms of a bailout agreement after Greece and its European creditors failed to reach at meetings this week.
Greek prime minister Alexis Tsipras announced the move in a surprise turn late Friday night.
“We don’t see any good outcome from the referendum,” Morgan Stanley wrote. “Even if it’s a ‘yes,’ the current government could be in jeopardy and a period of political limbo might follow, while its creditability with the creditor institutions remains at rock-bottom.”
The firm adds: “This is why we now think that scenario of deposit and/or capital controls in the very near term is highly likely. The decision to hold this referendum seems to imply Greece sliding towards Grexit, even though there are no legal provisions for a country to leave.”
Early Sunday morning, Greek finance minister Yanis Varoufakis tweeted that the Greek government opposes capital controls.
Capital controls are basically rules that limit the amount of money that can come out of a banking system. In his tweet, Varoufakis said that capital controls within a monetary union are a “contradiction in terms.”
But as former BI editor Joe Weisenthal used to say, “The first rule of capital controls is: you never talk about capital controls.” The thinking there is that once people believe their ability to take money out of banks is formally limited, you’ll incite an even deeper panic. So while many in markets think that capital controls are now inevitable, there won’t be any indication from Greek officials that these are coming until, well, they are.
As it stands, there have already been substantial lines at Greek banks to withdraw cash this weekend.
Overall, though, the months-long drama of will Greece default on its debt or not appears to be coming to at least one major turning point: Greece will likely miss its Tuesday payment to the IMF.