Fitch: Impact of Hypothetical Greek Exit; Limited Direct Impact on EU, However Redenomination on Banks Could Be Severe
In a new report, Fitch Ratings says that a hypothetical Greek exit would have limited direct, cross-border impact on neighbouring countries. While Greek and Cypriot banks would be severely exposed, the direct impact on most of the other eurozone banks would be modest. Of these, banks with subsidiaries or branches in Greece would be most affected, and the impact they faced would depend on the extent to which they are funding Greek assets cross-border.
However, Fitch believes the indirect impact of a Greek redenomination on banks throughout the eurozone could be severe, most notably in programme countries as well as Spain and Italy. A robust response from policymakers would be required to prevent contagion, and Fitch would expect a strong public statement of commitment by the ECB and eurozone policymakers to provide support, if required. Furthermore, this statement would need to be backed up by specific policy actions. The willingness to extend a EUR100bn credit line to Spain to support its banks is a clear sign of policymakers' willingness to do what is necessary.
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