The Greek people's reaction to the implemented austerity measures should not be ignored, warned Alastair Newton, managing director and senior political analyst at Nomura.
“Because we’re not getting petrol bombs chucked around, this (the demonstrations) is not getting a lot of coverage by the press,” Newton told CNBC, but "we’ve got a situation out there where we’ve got protests."
“Frankly, the bailiffs from Brussels are not going to be welcomed in Athens with the vast majority of the Greek people,” he added.
The International Monetary Fund and the European Central Bank are both ‘basically playing chicken’ on the Greek debt situation, Newton told CNBC Thursday, a day after credit rating agency Moody’s downgraded Greece's rating by three notches.
Despite this, “there will be some sort of agreement (on Greece), by the end of the month,” continued Newton.
“The whole of the next two years basically hinges on privatization and that is going to be a big deal in Greece. It’s not popular; it means people’s jobs are at stake. Particularly if an outside agency are involved. There are all sorts of issues of what that means for Greek sovereignty.”
“The IMF (is) threatening not to contribute its share… The ECB saying if there’s any private sector involvement it’s going to bring the whole European banking sector crashing,” Newton said. “What it looks like is we are moving to a semantic exercise in a private sector debt rescheduling.”
“Basically, it looks like Europe’s banks are going to volunteer to extend credit,” added Newton.
The ratings situation causes “the ECB difficulty because the ECB then says, ‘I’m sorry but we are not supposed to take de-rated government bonds as collateral therefore we are not going to put liquidity into the Greek banking sector’," he said.
“Which would be mean the ECB is effectively saying, ‘we’re prepared to put the whole euro project at risk’, which is a very big call for them,” Newton told CNBC.