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By Jason Stipp and Francisco Torralba, Ph.D., CFA | 07-01-2015 01:00 PM

Where Will Greece Go From Here?

Morningstar Investment Management senior economist Francisco Torralba outlines the possible scenarios and what they mean for the eurozone and U.S. investors.

Jason Stipp: I'm Jason Stipp for Morningstar. As the Greek drama is playing out and moving markets as it goes, we're checking in today with senior economist Francisco Torralba from Morningstar Investment Management for his take on the possible scenarios and what they may entail.

Francisco, thanks for joining me.

Francisco Torralba: Thank you for having me here.

Stipp: First of all, we've known for a long time that Greece has had financial troubles. But to take a step back, why are the issues flaring up again recently? Why are they in the headlines?

Torralba: The existing bailout program that Greece had with its creditors was expiring on June 30. And as we got closer to that deadline and it was apparent that there wouldn't be a deal, markets got nervous, understandably, and this is where we are today, one day after that deadline.

Stipp: And we know that that deadline was technically missed, but negotiations are still going on. One thing is that the markets, although they have been disrupted somewhat as these negotiations have been happening, it does feel like it's different from the last time Greece was in the headlines. How would you characterize the context this time around versus the last time?

Torralba: Well, it's worse. I think it's worse. The second bailout officially expired in February, but they were able to get an extension for four months that ended in June. I think Europe now feels that they have allowed enough time for the two parties to reach a new agreement for a third bailout, and they feel like Greece hasn't really made enough progress with the reforms that they need to make. So, I think that this time Europe has less patience or is less willing to yield to Greece's demands. So, I think that's the main difference. We are getting to a point where Greece has less room to get what they want.

Stipp: I know there were concerns last time around about financial shocks to the rest of the eurozone and to the rest of the globe. Do you think those shocks are as pertinent today as this crisis is happening as they were last time?

Torralba: No, they are less likely to happen. Since the last time we had a Greek crisis, European institutions--in particular, the European Central Bank--have put in place mechanisms that make contagion less likely. They have the asset-purchase program. They also have put in place the EFSF and the ESM to lending institutions that would be there for other countries should they need to borrow from them.

Stipp: There was news on Wednesday that the Greek prime minister is prepared to agree to some recent bailout terms, and so that was causing the market to go up on Wednesday. However, there is also a referendum that's scheduled for the Greek people this weekend. So, if we have news that the PM is ready to agree to the terms, where does the referendum come into this story now?

Torralba: As of 12:45 PM Central time [Wednesday, July 1], this is precisely what we know: There was a request for a third bailout and agreement to most of the conditions that Europe was demanding. Nothing really transpired officially from Europe, but a few hours after that, the Greek prime minister said they were going to still hold the referendum. So, I don't know if there was some communication that we are not aware of. Europe said they weren't going to agree to those terms. So, what we know as of now is that they are holding the referendum on Sunday. My personal take on this referendum: The main difficulty here is that, whether you vote yes or no, it's a complicated question with scenarios that are difficult to understand. So, that makes it very difficult for Greek voters to make a decision.

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