An orderly Greek departure from the euro would not cause a “Lehman-style event,” while increasing trading volume and containing volatility in the foreign-exchange market, according to Greenwich Associates.
In the most likely scenario for the future of the euro bloc, a contained Greek exodus, trading volumes excluding interbank trades and short-dated swaps and rollovers would probably rise 7.5 percent in the year after the withdrawal, according to a report by the research firm. Volume would slow to a 5.5 percent average annual increase in the following years with muted volatility as investors are exhausted by negative news, it said.
Measures taken by the European Central Bank and euro-area governments as the debt crisis has continued have allowed global investors to prepare systems and strategies for a potential change to the makeup of the currency union, according to the report. A systemic shock similar to the one that followed the collapse of Lehman Brothers Holdings Inc. in 2008 isn’t probable, the Stamford, Connecticut-based firm said.
“A contained Greek exit is what we thought would be the most likely outcome given the current environment, but it’s a moving target,” Tim Sangston, a consultant at Greenwich, said in a telephone interview. “There is so much news you that can’t act on every bit or else you’ll drive yourself crazy, so there is a natural volatility limit.”
If Greece forms a government in the June 17 election that supports the nation’s bailout terms and the ECB continues to support the region’s liquidity, Greenwich said average annual volume would increase 4.2 percent next year, compared with last year’s rise of 3.6 percent. Volumes are calculated on an October-to-October basis.
A disorderly Greek exit that started a chain reaction and caused acute crises in Portugal, Ireland and Spain would drive volume up by 13.9 percent and volatility would seesaw, the firm said. Bond issuance and bank lending would slow, with international markets taking five years to settle as European countries struggled through recession and civil unrest, according to the report.
In another scenario, if Germany and other core nations were to leave the shared currency, volatility would remain at elevated levels due to liquidity withdrawals. Investors could expect an increase of 9.6 percent in average annual volume.
The euro dropped 0.8 percent to $1.2406 in New York trading today and touched $1.2386, the weakest level since July 2010.
Greenwich tracks foreign-exchange trading volume among 2,600 end-user corporate and institutional customers.
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