Bloomberg News

Greek Exit From Euro Area Poses ‘Catastrophic’ Risk, Nomura Says

December 01, 2011

Dec. 1 (Bloomberg) -- The consequences of a Greek exit from the euro would be “catastrophic,” and the country still poses “significant” risks in the coming year, Nomura Holdings Inc. economists said in a report today.

“The formation of a coalition government and mounting pressures on the rest of the periphery, semi-core and even core markets have temporarily pushed Greece off the market’s radar,” London-based Nomura economists Dimitris Drakopoulos and Lefteris Farmakis said in the note. “Significant event risk remains,” in the next six to 12 months, particularly in the first quarter of next year, they said.

Lucas Papademos was appointed Greek prime minister on Nov. 11 to implement a program of economic reforms and a debt swap with creditors agreed upon at an Oct. 26 summit in Brussels. Agreeing on the details of the debt swap, which aims to slice 100 billion euros ($135 billion) off Greece’s 360 billion-euro debt, is the main task the new government faces, according to Drakopoulos and Farmakis.

While the debt swap agreement will likely trigger credit- default swap contracts “in the process of securing the very high targeted participation levels,” it is “more important at this point to gauge whether” the debt swap “as planned is actually implemented,” the economists said.

The Nomura economists also said neither Greece nor Europe “had much to gain” from Greece exiting the euro region and adopting a new national currency. “No sensible” domestic or European policy maker would let it happen, the note said.

“Accidents, however, do happen. The next few months will be crucial for Greece’s future and prosperity in the next few decades,” Nomura said.

--Editors: James Hertling, Alan Crawford

To contact the reporter on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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