Here’s a frightening prediction for global investors: there’s a 65 percent
chance of a banking crisis between 23 and 26 November, which will be triggered
by a Greek default and a run on the Italian banking system, according to
Exclusive Analysis, a research firm that focuses on global risks.
Exclusive Analysis’ conclusions, published by CNBC and some other
media outlets, is the first to offer specific dates on when the eurozone is
likely to be thrown into a severe financial crisis.
The research team believes the most likely possibility from a set of outcomes
is that a sudden crisis will erupt once the US, UK and BRICS (Brazil, Russia,
India, China and South Africa) refuse to provide funding via the International
Monetary Fund for the eurozone.
In a worst-case scenario, Exclusive Analysis expects
the governments of Greece
and Portugal to collapse and German opposition to handing more funds to the
European Financial Stability Fund to harden.
“In face of that, China and the other BRICs give
clear signals that they will not support the bailout fund. The EFSF turns to the
European Commercial Bank (ECB) , which refuses to print out the amount of money
the former needs to bailout the PIIGS (Portugal, Italy, Ireland, Greece
and Spain).
“In face of the EU’s failure to boost the EFSF, the
European banks refuse to accept the 50 percent haircut on Greek debt. Both the
International Monetary Fund (IMF) and the ECB suspend payments to Greece,”
the report said, according to CNBC.
The report predicted that between 18 and 22 November, French debt is most
likely to be downgraded, which will cause a freeze in the inter-bank lending
market. French sovereign debt is currently rated triple A.
Around the same time, Spain will witness an upsurge in civil unrest following
the election of a new government, while Portugal will announce it cannot meet
its financial targets putting its bailout cash from the IMF and ECB at risk.
That will reignite default fears again and send Italian borrowing costs
soaring to 7.3 percent, while depositors in the country, as well as in Spain,
spark a run on banks. Greece defaults on its debt as well, the report added.
Events reach a climax between 23-26 November when Greece exits the euro to
print money and rescue its banking sector. The new currency falls quickly and
depositors lose out as their investments are converted into the new
currency.
The government will announce a default on its sovereign debt, while banks
default on their foreign debt, sparking a banking crisis across Europe. The
contagion will spread to Italy, forcing the government to freeze deposits and
default on its debt too.
Before you collapse in shock, remember that’s the worst-case scenario by
Exclusive Analysis.
There is a middle-of-the-road scenario, which is that there is a 25 percent
chance the EU will continue to muddle through. In that case, the governments of
Greece, Italy and Spain get some breathing space to resolve the crisis, although
French debt is still downgraded.
Gloomily, there’s just a 10 percent chance the sovereign debt crisis will be
resolved, according to Exclusive Analysis. In this situation, Greece still
defaults before the end of the year, but “stronger political leadership in other
PIIGS contains the fallout”, the report said.
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