1) If a political agreement is reached in the next few days, the ECB will continue to refinance banks, and a major collapse of the banking sector and the economy will be avoided. Nevertheless, special measures would have to be introduced, which could see a new government; Grexit may thus be avoided.
2) If negotiations fail and the ECB cuts off its ELA, the future of Greece looks bleak: it would default on all its debts; the banking sector would be brought to its knees under bankruptcy; Greece will be forced to leave the eurozone and a new currency would have to be introduced, which would devalue significantly
3) If negotiations fail, but the ECB agrees to continue to finance banks temporarily: this is the ”half-way-house” scenario. This final possibility may lead to an orderly Grexit, which would be less costly for each camp, but would still represent a failure for the European political project.
There may be both positive and negative surprises; the financial reactions after the “No” vote remain quite muted, as the ECB’s credibility is still intact, due to its status as lender of last resort. Spreads on peripherals may widen temporarily, but the ECB has the means to stop any contagion, through its quantitative easing programme on bonds and special liquidity injections into banks in Portugal, Spain or Italy if needed. The markets can expect to see high volatility over the coming days, along with a weakening euro.
The Fed will follow developments in the eurozone, but at this point in time there is no major reason to change its strategy on Fed funds rates. Strategy will remain divergent between the Fed and the ECB, and this should favour the USD over the EUR in the medium term.