Markets calm about Greece, but don't be complacent

The early reaction to the markets reflects a mild concern about contagion, but no panic. Portugal, Spain and Italy's stock markets are all down roughly 4 percent. Big European banks are down 4 to 6 percent. European peripheral debt is seeing a mild rise in yields, but not dramatic. The euro is down only 0.4 percent against the dollar. Gold is up all of $3 (0.3 percent).

This relatively mild reaction may or may not be what Tsipras had in mind when he called for a referendum. Many believe chaos is an important part of his negotiating strategy.

Tsipras' decision to call a referendum Friday night in the midst of negotiations has added a new layer of complexity to the negotiations, but the decision was not entirely absurd.

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If he went ahead and agreed to austerity, the Greeks would throw him out. If he didn't agree, they would throw him out.

The only chance was to get the country behind him, and hope the chaos encourages the Europeans to go for a better deal.

Or—as many believe—he wants a final OK to leave the euro.

Banks have been shut down until at least July 6, with cash withdrawals limited to 60 euros a day. There was little choice; Moody's noted that bank deposits had declined by 44 billion euros since November, to 120 billion euros, including 8 billion in the last two weeks.

Eurogroup finance ministers on Saturday ruled out further extension of the aid package past June 30.

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The Greeks owe a 1.5 billion euro payment to the International Monetary Fund on Wednesday, but not paying at that time merely puts them in arrears, not in default. The key date is July 20, when Greece faces an European Central Bank payment of 3.5 billion euros due. If it does not make it, then Greece would officially be in default.

The question being posed in the referendum is Yes or No on the European offer, but what is the offer? It is based on proposals that are expiring, a point the IMF's Christine Lagarde made over the weekend. The Eurogroup made a proposal that was miles apart from the Greek proposal, and did not include anything on debt forgiveness, and those discussions that were held were based on economic assumptions that may no longer be valid.

Traders were remarkably optimistic over the weekend, the same majority that was hopeful some kind of "kick the can" solution would be found last week. The new prevailing bet is that the majority vote would be Yes, that Tsipras would resign, and that would set up the path for a national unity government.

At that point, you look to make a deal before the big date, the 3.5 billion ECB payment due on July 20.

The problem is, how do you do this in the time frame available? How do you get the referendum done, form a national unity government, negotiate a new deal with the creditors which may or may not include some kind of third bailout, and get all the governments to agree on a deal, all by July 20, especially when there is no trust at all between Tsipras and the rest of Europe?

It does not seem possible. And that is assuming there is a Yes vote.

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Many traders felt the crisis is containable because: 1) the ECB will be buying bonds under the Outright Monetary Transactions (OMT) program, which are secondary market purchases of sovereign debt and 2) Mario Draghi and his team are experienced at crisis management.

Citigroup's Tobias Levkovich has been telling his clients not to change their U.S. equity holdings, noting that Europe is only a bit more than 10 percent of S&P 500 sales and that the U.S. economy is improving.

Still, be wary of broad statements that this has been well-telegraphed, that markets have time to adjust, and that contagion can be contained. If Greece leaves the euro, this will be a rolling crisis, not one that ends next Monday.

Forget contagion. The prospects of a failed state on the edge of Europe, with a Russian fleet in the port of Athens and hundreds of thousands of impoverished Greeks flooding into the Balkans, is not something that can be modeled.

The two areas to keep an eye on, it seems to me, are European peripheral debt (Italy, Portugal, Spain), and also U.S. high yield debt.

The strange part is that the negotiations appear to have been going well, with the Europeans ready to make additional concessions. Tsipras obviously felt that even that progress was not enough to bridge the gap. Even today, German chancellor Angela Merkel, speaking to her own party, told them, "If the euro fails, Europe fails." This is to her own party. She seems to be setting them up for concessions.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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