“Greece is more likely to leave the Eurozone in the medium term rather than continue to be a member,” says an Economist Intelligence Unit (EIU) report.
EIU is a British business within the Economist Group that provides economic forecasts and advisory services through research and analysis.
The particular EIU report estimates what would be the major threats that the world is likely to face in the coming years. The chance that a Grexit would happen within the next two years and would force other countries such as Italy to follow are 0-10 percent.
However, if that scenario is verified, it could cause world growth to decline by one to two percentage points.
According to the EIU analysis, Greece is plighted by problems such as “deeply rooted corruption of its oligarchy, lack of foreign investment (as a result of closed sectors, protectionism and hostility towards foreign companies), resulting in a lack of competitiveness”.
Consequently, the authors consider that a Grexit would not be a systemic threat to the Eurozone, while at the same time a European Central Bank intervention would curb the spread of the crisis. “We do not expect other countries to follow, but if they did, it would cause great damage to Europe and the world economy,” the EIU warns.
Regarding Italy, the authors of the report do not see that the party that would win the upcoming election will hold a referendum for Italy’s exit from the Eurozone.
EIU further says that countries that would leave the Eurozone under pressure would suffer a great depreciation of their currency and would be unable to service their debts in euros. In turn, banks will suffer huge losses due to government bonds in their portfolio and that will affect the global economy.
Of the remaining potential threats, the recession of world trade, which could be triggered by the adoption of a tough protective policy by U.S. President Donald Trump, stands out. The biggest fear is that the US will withdraw from the North American Free Trade Agreement and will impose trade sanctions on China, which will disproportionately react to triggering a full-scale trade war with the United States.
The EIU editors also say that a major threat to global economy is that world stock markets will enter a prolonged downfall period, resulting in an overall economic destabilization. The probability of verifying this scenario is 40 percent over the next two years and the consequence would be a decline in global growth by one to two percentage points.