Risk of financial chaos spreading in the event of a Greek exit from the eurozone is limited and lower than during the 2012 “Grexit” scare, a report by ratings agency Standard & Poor’s said Thursday.
The study said the threat of Greece abandoning or being forced to drop the common currency would be “less financially risky for the remaining eurozone members than it would have been during the last Grexit… not least because the eurozone rescue architecture is more robust than during” the 2012 crisis.
In particular, the study said the introduction of the European Stability Mechanism to support euro partners and similar levers of assistance created since 2012 proved their effectiveness in assisting Ireland and Portugal through episodes of financial turmoil.
It added that those innovations would greatly help circumscribe “direct contagion that would drive other sovereigns out of the euro” should Greece pull out.
The S&P report comes at a tense time for the eurozone, as Greece seeks a six-month extension of rescue loans from the European partners while eschewing the severe constraints that accompanied its bailout programme.
Several euro partners — with Germany at the helm — have rejected Athens’ carrot-heavy and stick-lite demand, raising the spectre of Greece running out of cash by the end of the month.
Should no compromise to the impasse be found, S&P said an ensuing Grexit would “almost certainly be accompanied by a payment default by Greece on both its official and commercial obligations.”
But the agency noted the country’s ties to financial markets have been scaled back to a point where it is already being treated as a virtual eurozone outlier — as witnessed by the considerable disparity between high Greek bond yields and far lower rates for most other euro members.
For that reason, a euro exit by Greece would not likely engender sweeping automatic consequences for other euro nations.
“We believe that the financial burden of a Grexit on the remaining 18 eurozone sovereigns would be moderate and absorbed over decades, and we therefore do not expect that a Grexit, by itself, would have significant rating implications for these sovereigns,” said Moritz Kraemer, a credit analyst for S&P. [AFP]