"Should the Greek government and its international partners fail to reach an agreement in the emergency meetings scheduled for the coming days, a further escalation in the crisis would seem likely", argues UBS.
"This could well include changes to the ECB's provision of Emergency Liquidity Assistance (ELA) and capital controls, which would likely destabilise sentiment and put a heavy burden on the Greek economy, the banking system, and government finances – while not necessarily prompting the Syriza government to agree to Troika demands," UBS said.
"Our base case scenario is still that a (last minute) compromise will be found, but the risk of a potential Grexit clearly seems to have increased."
"We argue that peripheral bank stocks primarily, peripheral
bond markets, and (perhaps to a lesser extent) the EUR are likely to
sell off in the near term, as the markets are not fully reflecting the probability of an escalation in relevant risks."
