Fitch Ratings just weighed in on the Greek referendum, and their prognosis isn’t pretty.
Essentially, this new Greek referendum could destroy the euro.
Although Fitch’s research team admits that no one can be sure what happens if Greeks vote “no” to the latest bailout, it suggests that only swift, collective action by the rest of the EU leaders in erecting a firewall around Greece will prevent the rest of the eurozone from falling prey to the contagion caused by such a fallout.
From their research team:
A rejection of the EU-IMF programme recently negotiated by the Greek government would increase the risk of a forced and disorderly sovereign default and – whilst not Fitch’s central rating case (see ‘The Euro Area Financial Crisis – How Does it End?’, 20 September) – potentially a Greek exit from the euro. Both of which would have severe financial implications for the financial stability and viability of the eurozone.
The announcement of a referendum late Monday underscores the urgency of establishing a credible firewall to prevent contagion from Greece destabilising the eurozone. The uncertainty over whether Greece will accept the EU-IMF programme and PSI also increases the uncertainty around the losses that creditors may incur and hence bank recapitalisation.
In Fitch’s opinion, it is essential that there is rapid progress in making operational the enhanced ‘firepower’ of the EFSF and that the ECB stands ready to intervene in the secondary market to moderate the contagion to solvent but potentially illiquid sovereigns, notably Italy and Spain.
Read the full report here.