If you’re looking for a quick breakdown of what will happen to markets if Greece defaults, Societe Generale’s Suki Mann has your walkthrough.
In brief: Greek default will send eurozone fringe debt yields higher, lead to downgrades, endanger the region’s banks, get everyone really scared about Spain’s banks, and send the demand for cash surging.
From Societe Generale’s Suki Mann:
We spoke in terms of a possible worst case scenario last week (that’s a euro break up – full or partial, taking in corporate debt redenominations, currency depreciation, value destruction and rating downgrades) and we need to revisit it. We also mentioned that Portugal, Ireland, Spain, Italy and Belgium – will likely be dragged into the mess. Portugal and Ireland might have recourse to the EFSM/EFSF facilities – but we don’t believe that will be enough and we’d expect to see a decline in the credit quality of the facilities anyway (funding costs higher). We’ve seen structured products downgraded before. Spain at the sovereign level has a much lower debt burden than all the others, so? If they can’t fund at an acceptable cost in the market they will also be in dire straits. Their banking sector, already viewed with massive suspicion, should come under even greater scrutiny and turmoil will likely follow. Flight to quality equals lower bund yields and credit investors may seek to bolster already growing cash positions in corporate bond funds. Peripheral risk pricing risks going materially higher into the dreaded votes; while core quality blue chips fare relatively better.
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