How does Goldman Sachs & Co. assess the Grexit?

The endless Greek crisis has generated much comment from institutions like the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). Their general perception, like most of the European governments, is that the Greek situation can be addressed if Greece undertakes necessary reforms. The central issue is that the Greek people and government consider they’ve made enough efforts already and that doing more would be unbearable. For now Greece has paid back what it owed the IMF, but there is a mismatch: Greece used its IMF cash emergency fund to reimburse the IMF. That means Greece is at the very brink of default if the European policymakers’ “heroic efforts” fail.

Goldman Sachs researchers wrote Greece’s process towards financial sustainability would be “messy” and prompt “down-to-the wire negotiations.” But in the end, the IMF would be paid back which, in exchange, would “continue to extend funding to Greece’s banks and that Greece will remain part of the EU.” JP Morgan Chase opted for a less risky approach by introducing three possible Greece debt deal scenarios, including a most adverse one with a nationwide bank holiday and a quick Euro fall. “The first path is our base case that the troika is willing to concede on the primary surplus and provide funding in exchange for progress on structural issues,” it said, adding that whatever the outcome today, Greece’s structural issues would still exist in the future. According to BlackRock, Greece’s situation has created a “systemic risk” considering that if Greece defaults, then countries such as Portugal and Spain could do the same. “If Greece does not capitulate, Europe has no choice but to kick Greece out, the Europeans have no choice but to be firm,” said Chairman Laurence D. Fink.

Days before the leftist party Syriza won the general elections in Greece, Morgan Stanley warned that the election of Alexis Tsipras as Prime Minister would “set up an awkward stand-off with the euro area and the IMF,” but saw a likely compromise ahead. “Staying in the euro, being in power and undoing the bailout program is an ‘impossible trinity’ for Syriza,” wrote analysts. That’s why they think Greece doesn’t want to exit the euro area. “If that happens, it’s more likely as a result of failed negotiations – which may force the exit,” they concluded. Summing up, 3 out of 4 of these investment banks believe the Grexit can be avoided while 1 out of 4 considers the EU must stand firm and not exclude the Grexit as a means to solve the crisis. They all agree that the Greek crisis is the main weak point of the euro area and the main reason why they remain wary about investing larger equity in Europe.