Global markets may have recovered from an onslaught of Greece-sparked volatility earlier this week, but Sunday's referendum will plunge investors back into uncertainty.
The Australian equities market lost almost $40 billion on Monday as the first major market to open after Greek Prime Minister Alexis Tsipras abandoned the debt bailout negotiations in favour of a referendum on whether to accept the terms of a proposal tabled by the country's creditors. European equity markets followed suit.
While markets had settled slightly by Friday, with the local market mostly recovered, the July 5 referendum will cause further financial flurries regardless of its outcome.
"Few Greeks truly understand the economic and social consequences of this vote and how more trouble will follow regardless of the outcome," BK Asset managing director of foreign exchange strategy Kathy Lien said.
"The one absolute certainty is volatility."
Asia-Pacific head of fixed income for UBS Global Asset Management Anne Anderson said forecasting the impact of a 'yes' or 'no' outcome was difficult.
"They've taken us all on an odyssey with no clear end game," Ms Anderson said.
"No one really knows definitely which way it is going to go. The reason the markets and the euro haven't weakened significantly yet beyond an early knee-jerk reaction is probably that, deep down, people can't believe that the Greek people would choose to exit from the euro. But it's still possible."
Market implications if Greece votes 'yes'
Despite Mr Tsipras campaigning for the 'no' vote, most analysts say the referendum is still to close to call but indicating a 'yes' vote is more likely. A poll just three day out from the vote had 47 per cent voting 'yes' and 43 per cent voting 'no', indicating the majority of Greek citizens will likely vote to accept the cuts and higher taxes proposed in the IMF bailout deal.
A triumphant 'yes' campaign would likely lead to a new bailout deal that includes some debt relief measures and make it unlikely Greece would exit from the euro zone in 2015.
"A 'yes' vote is the market-friendly scenario," Nomura economist Lefteris Farmakis said.
"It is important an point to note, however, that initial conditions are adverse and there would still be significant ground to cover before any deal is reached."
Mr Farmakis added that a tight referendum and a marginal 'yes' vote would cause a "very divisive and problematic state of affairs" that would lead to increased instability and difficulties for those trying to reach a new-bailout agreement.
Most economists are expecting a new bail-out agreement to eventuate from a 'yes' win, but political instabilities in Greece could pose significant hurdles.
The Syriza leaders have been openly campaigning for a 'no' vote and would likely lack their creditor's trust, which is critical to forming a new bailout deal. Only finance minister Yanis Varoufakis has committed to resigning if the 'yes' campaign is successful.
"Overall, we consider the likelihood that no bailout agreement materialises following a 'yes' vote to be low but not negligible," Citi's Mr Buiter said.
Risks include if the current government led by Mr Tsipras stayed in power but failed to finish the negotiations, or a new anti-bailout government was elected in a snap election.
On Thursday evening, the International Monetary Fund published a report saying Greece needed an additional 60 billion Euros and increased debt relief over the next three years to allow the country to stabilise and recover.
Any new bailout agreement is unlikely to solve the immediate liquidity squeeze driving Greece's ongoing recession deeper and will require greater stability and stimulus to recover in a country that has little of either.
The European Central Bank, one of Greece's key creditors, said they had scope to reach a new bail-out agreement in the face of a 'no' vote.
"If the response is 'yes', I have no doubt that the euro area authorities will find the means, one way or another, to honour the commitments that have been made."
A 'yes' vote is also likely to lead to loosened capital controls, Citi analyst Willem Buiter said.
"But lifting capital controls entirely, which is probably a minimum condition for a robust economic recovery will be difficult. Political uncertainty and weak institutions mean that implementation risks under a new bailout are likely to remain significant and the outlook for the Greek economy will remain challenging."
These ongoing pressures would keep the risk of a Greek exit high for years.
While there may be some small relief rallies in Greek and associated European equities and bonds, it could be short-lived as the instability will continue. The Commonwealth Bank has estimated a modest 0.5 per cent rally in the euro against the greenback.
BK Asset Management's Ms Lien said she was planning to sell euros at no lower than $US1.135 and $US1.15, unless the 'no' campaign won.
Market implications if Greece votes 'no"
If Greece votes no, the country will be unlikely to obtain a new bail-out agreement, which could well lead to a Greek exit of the eurozone ('Grexit').
Ratings agency Standard and Poor's said Greece's economy, which has already shrunk 25 per cent since 2009, would contract by another 20 per cent within four years if it made a distressed exit from the euro.
Global equity markets are likely to experience severe declines that will be even more intense than Monday's losses, which saw the ASX200 fall 2.2 per cent, Wall Street's S&P)500 drop 2.1 per cent, the Stoxx Europe 600 Index drop 2.7 per cent and Germany's DAX slip more than 3 per cent.
A Grexit would likely lead to a sharp contraction in Greece's already struggling economic activity as well as a limbo period before the probable redenominating of core financial institutions and contracts.
This precarity of this process would be further be influenced by an anticipated rapid and severe devaluation in a newly relaunched Drachma, which would have impacts beyond Greece's borders.
"In the near term, this could make the adverse shock even larger under Grexit, but Grexit would also bring the hope of an earlier and faster rebound," Citi analyst Willem Buiter said in a report.
"In the medium to longer term, the precedent of Grexit is likely to raise the risk of further departures from the euro zone and of rollbacks in other dimensions of the European integration process.
Mr Buiter said the worst case scenario Grexit situation would also put other anti-austerity and anti-euro parties on the defensive across Europe, increasing foreign exchange risk into the periphery spreads and even German bunds over the medium term.
UBS's Ms Anderson added that an exit could see yields drop for US, Australian and German bonds, while peripheral bonds such as Italy, Spain and Portugal could increase as part of a flight to high-quality, safer bonds.
Despite the significant fall-out a Grexit would cause, in the mid-term it could well boost the country's assets: equities and real estate are likely to rally alongside a major depreciation of a new currency.
Capital Economics analysts said it would not take long after a Greek exit for the Athens stock market to take off and recover some of the 90 per cent of its value lost over the ast seven years of instability.
"In the event of a Grexit, many may expect the stock market to remain weak, given their prognosis for Greece's economy outside the eurozone. Yet our view is that it would not be long before equity prices started to boom. This is tied to our belief that devaluation is essential to revitalise Greece's economy."
