The ongoing trajectory in Greek politics could lead to a scenario under which the Greek government chooses, or is forced, to leave the euro within the next year, Credit Suisse said in a note to clients on Wednesday.
“We think there is a small, but significant, chance that Greece could leave the euro in the coming year. If we were asked to put a number on it we would say around 15 percent,” the brokerage said.
Elections in Greece on Sunday saw many voters reject the biggest, pro-bailout parties in favor of smaller, anti-austerity parties.
With no outright majority for any of the parties, politicians are now attempting to form a coalition government.
The left-wing SYRIZA party is currently leading the talks, but few observers expect it to be able to form a government that will enjoy a majority in parliament.
If further attempts at forming a government fail, the country is headed for new elections.
If a second election leads to the creation of a left-leaning coalition that opts to reject the European Union/International Monetary Fund fiscal program, and if in turn the EU and IMF were to refuse to accept that move, then further bailout funds would be withheld from Greece, Credit Suisse said.
“In turn, that would likely lead to a renewed default on the new Greek bonds, prevent the recapitalization of Greek banks and the ability of the government to finance its primary deficit. That would also prevent the ability of Greek banks to fund themselves from the ECB,” it added.
A unity government could also attempt to renegotiate parts of the EU/IMF program and fail to do so, the brokerage noted.
“Certainly the tone from some core European countries and the IMF is unsympathetic. Following the failure to renegotiate, the government could either collapse or opt for policies similar to those described above, with similar outcomes,” Credit Suisse said.
“Clearly, there is plenty of uncertainty. But in both of the above, and under similar circumstances, the chances of a Greek departure from the euro would be seen to rise substantially,” the bank said.
“However, even in such crisis conditions, a Greek exit from the euro would not be certain – there would still be scope for policymakers in Greece and Europe to find a compromise. And there still seems to be sufficient appetite on the parts of both the Greek political class and European policymakers to keep Greece in the euro area, although it is less than it once was,” according to Credit Suisse.