October 17, 2012 by pavlospapathanasiou
A potential Greek exit from the euro zone ,the so called Grexit , poses the risk of a European or even a global economic crisis according to a report by Swiss institute Prognos AG held for Bertelsman institution.
In the same report published earlier today the Swiss researchers conclude that global economy would be able to absorb the shock of a Greek exit from the euro zone. However they cannot exclude a domino chain resulting in the bankruptcy of Portugal, Spain and Italy, a series of potential facts that would lead the global economy into recession.
According to calculations based on the VIEW econometric model , the cost of a potential exit of Greece, Portugal, Spain and Italy from the Eurozone will have serious repercussions on the economies of the 42 strongest economies in the world, representing 90% of the global economy, resulting to a total loss 17 trillion euros by 2020. Therefore the reports’ authors propose to the international community to prevent the exit of Greece from the euro in order to avoid a domino effect.
On what concerns Germany, the cost of Grexit would be up to 74 billion euros. To this amount one must add 64 billion euros loss for removing requirements of the private German and public sector.
Of particular interest is the potential cost of the exit of the four Southern European countries for France. Losses are estimated to rise at 154.4% of GDP, the highest percentage among all other economies that were examined by the researchers .The reasons are the strong presence of French banks in southern European countries, but also the expected competitiveness improvements of any countries that would leave the euro.
Regarding Greece the Swiss Institute estimates that a potential return to the drachma would cost to the country a total amount of 164 billion euros.
The case study for the different scenarios taken into consideration for the report was that public creditors would haircut their claims towards Greece at 60%. Furthermore it was considered that the new Greek currency would be devalued by 50% to the euro.