While we can expect some turmoil in the markets and some near term reinstatement of some trends, let’s keep in mind that the vote was positioned as a YES or NO! vote on the terms on the table. Tsipras did a very good job of positioning the vote as not a vote on exiting the Euro, but a vote on strengthening Greece’s hand at the negotiating table. While there is some risk–and certainly the noise (and volatility) will be prevalent—we are likely back into negotiation. It remains to be seen if this did strengthen Greece’s position or Germany’s. While the NO! vote won, there still remained a very large minority that was prepared to accept the terms on the table.
The likely weakening of the Euro in response to the vote has to be an indication that the impact of the subsequent outcome would actually have a negative effect on the Eurozone’s growth leading to even more QE. One could make the case that an actual Grexit would result in a stronger Euro. The exchange traders don’t seem to be of that mind. Or they simply see any action as moving the Euro further along the long-term trend that seems to be in place. The weaker Euro certainly makes the Eurozone more competitive from Greece to Germany. There ultimately has to be a difficult resolution for Greece, but it may not be as difficult as a YES vote would have produced.
This continues to be theater and we may not know all the lines. I think the first pronouncements have to be taken with many grains of salt. I think the script is being re-written, but the first lines will be quite emotive. The critics (those of us who are trying to make sense of this) may have to wait for the game theory to move a little further before drawing any conclusions. I am still of the mind that we are on a Sartre path.
In the meantime, there is another play or more of an opera in progress—China. It is a bit more opaque and is not as open to the global stage in keeping with the Chinese tradition. This may turn out to be as important or more so than the European play. Slow growth rates, some disruptions in the capital markets relative to provincial debt and an attempt to change the debt/equity ratios have an impact on global growth. This seems more remote at the moment than what is going on in Europe. I think it may move to a bigger stage soon. Pay Attention.