The Risk Of Greek Exit From The Euro Lower Than İn 2012"

The possibility of a Greek exit from the euro area was lower than during the peak of the crisis in 2012 and remains relatively unlikely, according to a new report from Moody?s Investor Service.

"The report adds that this higher risk 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" said in a Capital.gr news on Wednesday.

The polls show that, lewt-wing party Syriza is seen to be the winner in the early parliamentary elections on 25 January, which aims to cancel the debt agreement between Greece and the EU, European Central Bank and International Monetary Fund and write off majority of the debt that the country owes to these institutions.

The report, "Greek Exit Would Be Credit Negative for other Member States; but Contagion Risks are Lower Than in 2012" released by Moody's on Wednesday. "Any exit from the single currency would be a defining moment for the euro: it would show that the monetary union is divisible, not irreversible" said Colin Ellis, the report?s author and Moody?s Chief Credit Officer, EMEA.

"However, although a Greek exit today would likely trigger renewed recession in the remaining euro area, the credit impact may be less pronounced than in 2012 because contagion risk from a Greek euro exit has materially declined and because policymakers now have stronger tools to limit the damage from such an event."

The range of factors that would limit the credit impact of a Greek exit on other European countries include weaker cross-border links between European banks, the significant reduction of European banks? holdings of Greek government debt, the structural reforms undertaken by several European countries that have made them more resilient or cut their current account and fiscal deficits and stronger safety nets created after the crisis first broke.

"Although, even with these tools, a Greek exit would trigger heightened market tensions and a renewed recession in the euro area" Ellis added.

While European policymakers could use their stronger powers to limit the risk of contagion from any Greek exit in the short term, they would face further challenges in the medium term. Other euro area countries still have high debt burdens and unemployment rates and face headwinds from the weak economic outlook and deflationary risks.

Conversely, in the event of a Greek exit, its economy would probably suffer severe economic damage in the short term before the likely decline in any new Greek currency would aid the subsequent adjustment of its imbalances.

"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" added Dr Ellis. - Istanbul