Deutsche Bank presents three Grexit scenarios

German Bank takes a step further and gives three possible Grexit scenarios

 

Here’s three DB scenarios over “Grexit”:

-Grexit Scenario 1: No contagion
In the first scenario, Grexit occurs but has no contagion occurs

– Grexit Scenario 2: Contagion
In scenario 2, after a Grexit there would be an increase in volatility and a negative market reaction, including a widening of peripheral government spreads, a flight to quality in the bond market, weaker equities and weak risk markets in general.
-Grexit Scenario 3: A stronger monetary union

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In Scenario 3 euro area leaders understand that Grexit destroys the argument that membership in the euro area must be considered permanent. Investors will no longer be able to assign a zero probability that a similar political mistake will not happen again during the next crisis. The rise of populist parties across the euro area reinforces the risk.

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In conclusion the article supports that the most efficient ex-post response from euro-area partners is the one in Scenario 3, however, unfortunately, it is the least likely.
Furthermore, the article stresses that whether Scenario 1 (no contagion) or 2 (contagion) is most likely depends on market perceptions of two factors, those being politics and the ECB.