What next for Greece? Market analysts on prospect of eurozone exit

Analysts from Barclays, Bank of America Merrill Lynch, Fidelity and BNY Mellon assess weekend that sent the euro and shares plummeting

After dramatic developments in Greece over the weekend sent the euro falling, shares tumbling and forced up yields on some government bonds, City analysts have put out a range of views on whether the country can stay in the single currency and the how markets might react if it crashed out.

One immediate question is what the European Central Bank (ECB) could do if Greece fails to make a crucial loan payment to the International Monetary Fund (IMF) on Tuesday.

Related: Shares slide as deepening Greek crisis shakes global markets

Things are moving fast, but developments over the weekend have heightened the risk of an eventual Greek default and exit from the euro. Initially, this news is unlikely to be taken well by European equity markets. However, we think that the current crisis - whatever the outcome - will probably not damage the longer-term prospects for European equities.

I think we are witnessing the maximum level of concern about Greece on Monday. European markets are down 4% and the US is indicated to fall 2%. Soon though, investors in New York and Beijing will be thinking about more local issues such as the prospect of a Federal rate hike in September and further rate cuts in China. These decisions are more likely to have a profound impact on equities than the concluding chapter of a well-documented Greek default.

Per se, Greece is not too big to fail as the market exposure to Greece has diminished significantly over the past weeks. The main risk is contagion. It is a certainty: the Greek exit can only hurt the entire eurozone in the short run due to the lack of visibility, higher volatilities and erratic capital flows. Depending on the costs and benefits of a Grexit, the others will have the choice to take it or leave it. This is a crucial test for the euro.

Currency traders with a weak constitution should take a holiday, and fast. Those remaining at their posts face another week of white knuckles and heart palpitations as the Greek crisis enters its endgame. The week promises extreme volatility as the markets are likely to clutch at any sign of clarity. There is no blueprint for any of this, as both Greece and the euro enter uncharted waters. The only certainty is that Monday's rollercoaster ride is merely the start.

We are likely to be in something of a holding pattern until the close of play on Tuesday when we discover whether Athens has made its bundled payment to the IMF. Once this has been established, the next question will be what the ECB governing council will do next.

Market participants will be watching closely as events over the next few days unfold, starting with the probable default on the IMF loan on Tuesday. A Greek exit from the eurozone and the EU has become increasingly likely and investors in European risk assets are demanding higher-risk premiums. Meanwhile, the capital controls introduced to Greek banks could lead to the issuance of a parallel currency and global economic uncertainty.

Based on Bloomberg data at the end of 2014, our analysis of European banks' exposure to total Greek debt is 8%, nearly all of it owned by Greece's Eurobank, and to a lesser extent, Piraeus. To place this in context, Barclay's exposure is minimal at a1.29m (910,000), or less than 0.01% of privately held Greek debt.

Investors tend to dislike uncertainty, of which we are faced with at least another week's worth until the referendum on the creditor proposals next weekend. It is possible that the Greek public will vote yes to the proposals, in which case we might be in a situation where a new government will likely need to be put in place to do a deal with the creditors. This would probably be taken well by investors as it would significantly reduce the risk of Greece leaving the euro.