1 in 3 chance of Grexit: S&P

Lock out ... Standard & Poor’s says the crippling effects of a Greek exit from the euro zone would cause other European nations to think twice about bailing out of the single currency. Photo: AFP

Ratings agency Standard & Poor’s is tipping a one in three chance that debt-addled Greece will exit the euro zone after the looming June 17 election.

But while S&P says a Grexit would cause enormous damage to Greece’s financial position, the agency says it’s unlikely that the nation’s withdrawal from the crisis-stricken euro would spur other struggling nation’s to bail out of the zone.

“We believe there is at least a one in three chance of Greece existing the euro zone in the coming months,” S&P said. “Such an outcome would, in our view, seriously damage Greece’s economy and fiscal position in the medium term and most likely lead to another sovereign default.”

Like many observers, S&P pegged one likely trigger for a Greek exit from the euro zone on any decision taken after the election to dump the hard-won EU-IMF debt accord, adherence to which many European and international leaders say is a key condition for continued support of Greece.

But while S&P expects Europe’s leaders may be willing to play hard ball with Greece, it’s not so sure they would take the same approach with other struggling nation’s in the region.

“We would expect growing financial support and lenience in the face of slipping targets for other sovereigns embroiled in the debt crisis,” the agency said.

“Accordingly, we currently do not consider that a Greek withdrawal would automatically have any permanently or negative consequences for other peripheral sovereigns’ prospects of continuing euro zone membership.”

What’s more, S&P reckons the turmoil Greece faces if it does withdraw from the euro zone will scare other troubled member nations into toeing the line.

“We believe that other sovereigns would be unlikely to follow any Greek exit, having witnessed the resulting economic hardships.”

China, meanwhile, is reportedly drawing up contingency plans for a Grexit, with Reuters quoting three unnamed sources as saying that key Chinese agencies, including the country’s central bank, have been asked to calculate the potential economic risks of Greece leaving the euro zone.

“It’s very urgent,” one source told the wire news service. “The government has asked every department to analyse measures to cope with a Greek exit from the euro zone and make their own suggestions as soon as possible.”

According to Reuters, the sources said contingency plans could include measures to keep the yuan and domestic economy stable, as well as increasing checks on cross-border capital flows.

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