Greek euro exit seen manageable, not catastrophic

by Nigel Stephenson

Reuters
May 8, 2012

Greek voters' rejection of pro-bailout political parties in Sunday's election has raised the chances of Greece leaving the euro but this unprecedented step is seen as manageable rather than catastrophic for the currency bloc.

Some banks have raised estimates of the likelihood of Athens quitting the euro. But after a year of investors shedding bonds issued by highly indebted euro zone countries and big injections of central bank cash, they said the damage could be contained.

Spanish and Italian government bonds initially sold off, the euro fell and European shares slid on Monday, the first trading after the elections. However, all these assets recovered somewhat by the end of the day despite the deep uncertainty.

"This makes you wonder whether Greece is still a systemic threat or whether Greece is more of a Greek problem and a political problem for the rest of Europe," said Valentijn van Nieuwenhuijzen, head of strategy at ING Investment Management.

"Unless you have strong contagion into Spain and Italy, it's unlikely to be really an issue that would undermine the whole euro zone."

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