Moody's: Impact of Greek exit from euro area should not be underestimated
- Moody's expects Greece (Caa2, Negative Outlook) to reach an agreement with its creditors and avoid default. However, lack of progress so far means the probability of a default, and of exit, is rising.
- Default would not necessarily lead to Greece's exit from the euro area; more immediate threat could be a shock to confidence that damaged the functioning of euro area government bond markets. The risk of that happening is lower than in 2012, in part because the euro area financial system and economy are in a stronger position than three years ago; Policymakers' response to exit would determine the extent of any contagion.
- Should such a confidence shock occur, it would be particularly negative for periphery countries with high and rising debt burdens and ongoing fiscal consolidation challenges.