Grexit fallout could challenge ECB: Moody’s

While the euro zone could recover quickly if Greek left the single currency area, the impact on investor confidence could be far-reaching, the managing director of sovereign risk at Moody’s Investors Service, told CNBC on Friday.

“We think the immediate impact would be relatively slight, Greece is a very small part of the euro zone economy, trade with Greece is a very small of overall euro zone trade,” Alastair Wilson told CNBC.

“What is more difficult to predict is the impact on confidence in financial markets and therefore the potential implications for euro zone debt markets, which of course are the dynamics we saw at the height of the crisis in 2011-2012.”

The exit of a member from the 19-country single currency union would “inevitably” hit investor and consumer confidence, Wilson said, although Moody’s would expect a “relatively transitory impact and for the euro zone’s economy to recover.”

“The impact of a member of the currency union leaving the currency union is bound to have an impact on the confidence of investors who need to be able to allow governments to roll over very significant amounts of debt every year,” he told CNBC.

The reaction of financial markets to a Grexit—the term coined to describe the risk of Greece exiting the euro zone–was more difficult to predict, Wilson said, as was the ability of the European Central Bank (ECB) to contain the risk of contagion.

“Most likely, the tools that the authorities, and particularly the ECB have, would be significant enough to contain the contagion, but they might not,” he told CNBC.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.