Fitch: Greek "no" Tips Balance Further Towards "euro Exit"

- The "no" vote in Greece's referendum on Sunday dramatically increases the risk of a slide towards a disorderly Greek exit from the eurozone, Fitch Ratings said.

"An agreement between Greece and its official creditors remains possible, but time is short and the risk of policy missteps, or that the two sides simply cannot agree a deal, is high" the rating company said in an article appeared on Fitch Wire.

The resignation of Finance Minister Yannis Varoufakis signaled the Greek government's desire to re-engage with its official creditors, from whom stronger commitments on debt relief might be forthcoming following the expiry of the EFSF programme last week, Fitch added. "But assuming they return to the negotiating table, the creditors are unlikely to make large concessions on policy conditionality up front. Their proposals may still be unacceptable to a Greek government emboldened by the referendum outcome."

The lack of progress and loss of trust so far had made it difficult to strike even a limited deal before 20 July, said in the article, stating that 3.5 billion euros of bonds held by the Eurosystem fall due.

Solvency at Greek banks was very weak, with estimated combined group non-performing exposures for the four banks rated by Fitch above 40 percent at end of first quarter, it said. "These are likely to have deteriorated further since, making recapitalisation a more pressing priority."

Solvency concerns mİght also make it difficult for the ECB to justify an increase in Emergency Liquidity Assistance (ELA), reminding that it has not been increased since 28 June, although it might identify an interim way of providing Greek banks with additional liquidity while negotiations continue.

"Without new funding, Greek banks may have to reduce the minimum daily deposit withdrawals below the EUR60 permitted under current capital controls" it said.

"The risk that a Greek exit would trigger a systemic crisis in the eurozone has fallen in the last three years" Fitch warned, stating that the fiscal and current account positions, growth performance, and banking systems of other peripheral member states had improved and the bloc had developed support mechanisms.

"Nevertheless, a Greek exit would cause financial market volatility and dent economic confidence" Fitch said. "It would increase the risk of future economic and financial crises, creating fears of another euro exit, with the attendant risks of higher sovereign borrowing costs and bank deposit withdrawals."

This consideration might prompt a further acceleration in the eurozone authorities' continuing policy response to the eurozone sovereign debt crisis, as happened in 2012, if Greece does leave, it added.