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Having said this, even before a new current deficit takes shape, Greece could find itself facing bank deposit flight that the ECB may fail to balance. Given such as scenario, the imposition of capital controls and restrictions on cash withdrawals from current accounts would be inevitable. Lacking a credible agreement between the Troika and the Greek government, the evolution of the crisis could only lead to Greece plunging back in to the chasm of recession and exiting the euro area.

How should expectations for a resurgence of tensions on Greece be speculatively exploited? First of all, we consider the credit risk priced in by the Greek yields curve still unappealing. The default probability priced in by the 10Y bond, with a yield of 11.3%, is just over 14%, not much less than the non 16.9% probability indicated by the Bloomberg model (SRSK Sovereign Credit Risk). As regards timing, we believe that in the short term market tensions are likely to ease: by resorting to “emergency” financing, the Greek government will manage to overcome the difficult month of March and win two extra months in which to draw up a more exhaustive plan of reforms. In that period of time, windows will open to definitively exit market, a suggestion that stems from our underlying scepticism on the current government’s ability to carry out a programme agreed on with the Troika. In a previous report (IRS An assessment of the resilience of peripheral spreads, published on 20 February), we have already written that Greece’s default should not have important consequences on peripheral government bond spreads. Having said this, we believe that in the next few months the progress made on this front by Italy, Spain, and Portugal will not undergo a trend reversal.

Euro crise, Greek crisis, Greece to leave Euro, forecast, Euro area crisis, euro analysis, fundamental analysis

Euro crise, Greek crisis, Greece to leave Euro, forecast, Euro area crisis, euro analysis, fundamental analysis
Source: Hellenic Republic Ministry of Economy and Finance

 

Sergio Capaldi
Fixed Income Strategist
Senior Economist
Intesa SanPaolo

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