Moody’s: ‘Grexit’ unlikely, less risk of contagion than in 2012

moodysGreece remains relatively unlikely to leave the euro zone, ratings agency Moody’s said on Wednesday, despite the prospect of an anti-bailout leftist party winning a snap election on Jan. 25.

The leftist Syriza party has remained consistently ahead of its rivals in opinion polls. It says it wants Greece to stay in the euro zone but also wants to scrap austerity measures that underpin its bailout program and to ask Europe to write off a big chunk of Greek debt.

“The likelihood of a Greek exit (Grexit) is still lower than during the peak of the (euro zone) crisis in 2012 and remains relatively unlikely,” Moody’s said in a report.

But citing the political turmoil triggered by the early election, it added: “This higher risk (of Grexit) could have negative credit implications for other members of the European single currency, despite contagion risks being materially lower than at the peak of the crisis.”

Moody’s said other euro zone governments in the 19-member currency bloc were likely to reject any request from a Syriza government for debt forgiveness “partly because it could lead to similar demands from other highly indebted euro area countries”.

EU officials have been forced to state publicly in recent days that a ‘Grexit’ is not on the agenda.

Moody’s said a ‘Grexit’ would be likely to trigger a renewed recession in the remaining euro area, which is already wrestling with falling prices and limited growth.

Greece’s economy, only now recovering after a six-year recession, would also be damaged in the short term, Moody’s said, and the country’s ability to devalue with a new currency could raise the specter of other euro exits.

“Over the longer term, economic growth in Greece following an exit could exceed that in remaining euro area countries — which, in turn, could trigger discussions around further euro exits,” report author Colin Ellis said.

Reuters

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