A disorderly Greek debt default is likely to trigger severe financial market volatility and a broad repricing of other eurozone sovereign debt, rating agency Fitch said on Thursday.
In a twice-yearly report, Fitch sent a stark warning about the consequences of a Greek default, something financial markets still see as likely despite the fact the country is now poised to receive a second bailout.
?A disorderly Greek default would likely result in severe market volatility, pressures on sovereign and bank funding and a broader repricing of eurozone sovereign credit,? Fitch said.
?The risk of contagion to other distressed and vulnerable eurozone sovereigns and their banking systems is material. Resolution of the current Greek crisis is therefore essential – though not sufficient – to prevent a systemic threat to the eurozone.?
Fitch calculated that around 37 billion euros of Greek sovereign debt is held by 34 major European banks outside of Greece, adding up to roughly 4 percent of those banks? tier 1 capital.
Those figures alone are not significant enough to be of major concern, but the wider impact of the problems infecting other debt-strained parts the eurozone could be disastrous.
The European Central Bank also needs to keep bank support measures in place until the troubles subside.
Meanwhile, Greece?s government notes led gains by securities from the euro region?s most indebted countries on Thursday.
Greece?s two-year note yields dropped 58 basis points to 26.73 percent. The 4.6 percent security maturing in May 2013 advanced 0.62, or 6.20 euros per 1,000-euro face amount, to 71.24. Ten-year yields rose four basis points to 16.33 percent.