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Core countries of the euro zone would have to increase costs for indebted countries to mitigate the effects of exit of Greece from the monetary union, said a senior director in Fitch Ratings Ed Parker before key elections in the country this weekend that will probably decide the future of Greece the euro area.
These effects would be unprecedented and represent a great unknown, but in an uncontrolled release of the commitments of central Greece in the bloc countries could increase, he said.
With such developments as the EU it will have to act quickly to limit the spread of the crisis to other heavily indebted countries of the euro zone.
It is a potential banking panic flight of capital shocks in the markets for government securities. In this situation, countries like Germany, Austria and Finland will have to provide significantly more funding to replace funding for banks.
One possibility to reduce the stress of the market exit of Greece would be another transaction the ECB’s long-term funding of banks, analysts said.
“However, given that the central bank has already taken two of these, and banks were able to secure funding in place, and that may use short-term loans from the ECB, the institution is unlikely to resort to a new long-term lending,” says Parker.
He said Spain now offers a sustainable plan for the banking sector, and trust can be further enhanced by the sector assessment by external experts, as well as European funding to recapitalize the banks.
Parker said that the first class AAA ratings of Fitch U.S., Britain and France are under pressure because of high and rising debt and the negative impact on their economies to the global financial crisis and the crisis in the euro zone.
“If we see relatively soon stabilize debt ratios in these countries, they will be in accordance with their top ratings,” warns Parker.
Fitch expects next year in the U.S. to introduce medium-term fiscal consolidation program, following last presidential election in November.