14 July, AtoZForex.com, Limassol – Despite a “unanimous” bailout agreement, Credit Suisse Grexit believes are still at a 30% probability, with a similar one in three chance of it becoming a systemic crisis in Europe.
A research note from analysts headed by Andrew Garthwaite says that the biggest challenge will be the plan’s implementation as the deal needs to be passed by the hostile Greek parliament, and also supported through six other European national parliaments, only then face the real world for applying it.
“The challenge is that within (European) national parliaments, the established parties do not want to be seen to be giving ground to Syriza, as this would risk an increase in support for populist parties,” Mr Garthwaite pointed out.
Credit Suisse said that as of Friday, if Greece were to exit, continental European markets were pricing in a 35% change of a systemic European crisis and only a 10 per cent chance of an “acute” crisis. Furthermore, On Friday, relative to the US dollar terms, European markets were only 1 percent below where they were before Greece started to become a major issue in June, when Greek bond spreads started to sharply widen, Credit Suisse added.
Currently, European equities are 3% off their 2015 high, reached in April, which accounts for 0.8% GDP growth compared to its house view of 1.5%, CS noted, and despite the uncertainty of recent weeks, foreign investors were net buyers over the past month.
With a loan to deposit ratio of 125 per cent, Greek banks are dependent on the European Central Bank for liquidity, therefore, Greece is unlikely to prosper outside the euro, even with an introduction of a devalued drachma, according to Credit Suisse. “Greece is a relatively closed economy with weak institutions, which means that in all likelihood inflation would soon offset the benefits of a devaluation,” Mr Garthwaite finished.