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What would happen in case of Grexit?

According to William Davies, Head of global equities at Threadneedle Investments if Greece leaves the euro, contagion will be feared, the volatility of a currency under threat will resurface, and we revisit the throes of the euro crisis we endured a few years back. Not our central case but certainly a distinct possibility...

William Davies, Head of global equities at Threadneedle Investments, on the potential consequences of a Greek exit from the eurozone:

“If Greece is allowed to exit the euro and the situation creates a worse situation in Greece, at least initially, maybe there will be a greater desire to stay in the euro and reform elsewhere. In Italy, Renzi has had a tough job passing labour liberalisation and other reforms. In Spain Podemos, the anti euro party, has gained ground. So, strangely I think this may help governing parties in Italy and Spain. Maybe there will be a desire to reform even in France where less reform has been passed.

However this is a high stakes game. If QE is undertaken, peripheral spreads will likely narrow, but there is no guarantee that this will spur growth, which is what the Eurozone needs. If Greece leaves the euro, contagion will be feared, the volatility of a currency under threat will resurface, and we revisit the throes of the euro crisis we endured a few years back. Not our central case but certainly a distinct possibility.

Although our economic expectations for 2015 look pretty constructive for equities, political risks remain high. Greece may prove a case in point of the unpredictable consequences of the rise of nationalism and populism around the world and its negative effects on economies.”

Next Finance , January 2015

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What would happen in case of Grexit?

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