European stock and bond markets are set to take a sharp hit on Monday after Greece voted ‘No’ to harsh bailout conditions, and bankers said the European Central Bank’s response was now key to the extent of contagion. Many economists, including those at U.S. banking giant JPMorgan, reckon the outcome of Sunday’s referendum will probably hasten Greece’s exit from the euro.
“Although the situation is fluid, at this point Greek exit from the euro appears more likely than not,” JPMorgan’s Malcolm Barr told clients on Sunday evening, adding ‘Grexit’ was now the bank’s “base case”. “‘No’ most likely means EMU exit,” Barclays told its clients.
As Asia-Pacific currency trading got underway, the euro fell more than 1 percent against the U.S. dollar EUR= and more than 2 percent against Japan’s yen EURJPY. While currency weakness in itself won’t damage the euro zone economy, the reaction of other southern euro zone government bond markets and the stock markets first thing Monday will be a better measure of the sort of shock that has been largely missing in markets through the weeks and months of the latest standoff.