The ongoing political turmoil in Greece in the run up to a general election has not only increased the risk of a Greek exit from the euro zone, but could also have negative credit implications for other European countries, ratings agency Moody’s warned.
In a note published Wednesday, Moody’s Investor Service conceded that the likelihood of Greece leaving the currency union was lower than it was during the peak of the region’s debt crisis of 2012 and remains “relatively unlikely.” But it warned that – if it were to happen — “a Greek exit today would likely trigger renewed recession in the remaining euro area.”
“Any exit from the single currency would be a defining moment for the euro: it would show that the monetary union is divisible, not irreversible,” Colin Ellis, Moody’s chief credit officer, EMEA, wrote in the report.
Greece is due to hold a snap general election on 25 January amid ongoing political uncertainty in the country, which Moody’s said “increased the risk of a Greek exit from the euro area.”
Anti-austerity party Syriza’s lead in the polls has rekindled concerns around this scenario. The left-wing party has always said that it would renegotiate the terms of Greece’s two international bailouts – amounting to 240 billion euros – which required the Greek government to implement tough austerity measures and spending cuts.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said Greek government bonds indicated a 15-17 percent probability of Greece exiting the euro zone and defaulting on its debt.