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Wells Fargo: Greek Exit from the Euro Could Be a ‘Lehman Event’ for Global Markets

“The European debt crisis is once again at a critical juncture ahead of the second Greek parliamentary election and as Spain appears to be nearing a possible European Union bailout.
Benchmarking recent market moves against the prior episodes of the debt crisis suggests that markets are well advanced in pricing in a negative, but probably not an extreme, European scenario.
A Greek exit from the euro could be a ‘Lehman event’ for global markets leading to further equity market weakness and at least a 5%-10% US dollar gain against most G10 currencies.
That said, we still see a constructive European outcome as more likely, as Greece succeeds in forming a pro-austerity government and the EU provides assistance to help recapitalize Spain’s banks.
Given the extended speculative short positioning, this suggests scope for a near-term bounce in the euro. However, with Europe’s economic fundamentals very weak and monetary policy outlook dovish, it will not be long before the euro returns to a weakening path.” Vassili Serebriakov, Currency Strategist at Wells Fargo.

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