By Richard Milne and Patrick Jenkins
Unanswerable question is how far contagion would spread
Contagion. It is the word markets have feared throughout the eurozone debt crisis. And a Greek exit from the single currency would bring it to the fore in ways unimagined until now.
A “Grexit” would test the firewalls erected by policymakers, judged insufficient by many investors, and put the continent’s banking sector under extreme stress. But the concern for many in the market is less the immediate impact and more the example Greece would set for other struggling eurozone countries.
“The main worry about this in our opinion is not necessarily the first order effect but what it says about the unbreakable nature of the euro,” says Jim Reid, credit strategist at Deutsche Bank. “This would be especially relevant if in the future other countries continued to struggle. The full ramifications may not be felt immediately but a lot can happen over time and Greece leaving would remain a dangerous template if other economies continued to weaken.”
The direct costs are not small given Greece is likely to default on all its debt but they are seen as bearable.