As only several hours are left for the deadline Greece has to pay the IMF, tensions are rising in European capitals.
If Greece defaults and exits, what are the implications for the rest of the euro-zone? The team at Deutsche Bank explains:
Here is their view, courtesy of eFXnews:
In a note to clients today, Deutsche Bank assess the risk of Greek contagion to other euro area members from the perspective of their macroeconomic position, the euro area’s crisis response and national politics.
“Macroeconomic fundamentals suggest less of a basis for contagion compared to the crisis in 2010-2012. Private sector direct exposure to Greece is much smaller. The euro-area in general, and the other peripherals, are in a stronger position. The economy is in a recovery phase, albeit modest, and the current accounts of peripheral countries are in positive territory. Unlike in Greece and unlike 2012, private capital in the other peripherals has been stable so far this year. There has been some progress on the structural reform side too,†DB clarifies.
“Euro-area crisis management tools are much stronger than in the past. The ECB will not tolerate a tightening of financial conditions and has proven its ability to intervene in government bond markets with QE. The ESM is fully operational. Ireland and Portugal’s “clean exits†from their bailout programme demonstrates Europe’s capacity for success,†DB adds.
“Support for populist parties – buoyed by high unemployment, reform fatigue and a slow recovery – has increased throughout Europe. Within the next year there will be elections in Portugal, Spain and Ireland. The chance of seeing a parallel to the Syriza government emerge elsewhere is relatively low, in our view. Italy may have the highest proportion of euroskeptic parties but focus will likely be on Spain and the risk of Podemos being part of a government coalition,†DB argues.
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