Union International says that a Greek exit from the Euro, while catastrophic for Greece, could be equally painful for the rest of Europe
Union International: As the propsect of a Greek exit or “Grexit” from Europe grows with each passing day of impasse between Greece and her EU neighbors sharing the single currency, the lack of concern among stakeholders is, according to Union International, redolent of the complacency among investors prior to the collapse of US investment bank, Lehman Brothers Holdings.
“There’s a general perception in Europe at the moment that if Greece eventually leaves the euro, Europe will emerge relatively unscathed,” said Solomon Roth, chief economist at Union International. “In September 2008, if investors had any idea of what the collapse of Lehman’s would mean for the global economy, I think it’s fair to say that the Fed would have bailed the bank out. The ‘Grexit’ situation could be just as damaging for the global economy if, as we suspect, a default sparks contagion through the financial system, not just from Greek sovereign bonds but from the hundreds of billions in derivatives like credit default swaps.”
Greece’s efforts to rally support for a potential renegotiation of the terms of its bailout have not been well-received and the country’s new Prime Minister has reiterated that his country will not apply for the final tranche of bailout funds even though it is set to run out of money by February 28th.
“Yes, an exit would be highly damaging for Greece but Europe could be hit by a wave of bank write downs and defaults that could affect other counterparties. There’s just no way to tell,” concluded Roth.
Union International advise clients to seek shelter from any potential fallout in defensive stocks like utilities and pharmaceuticals.
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