The Greek debt crisis continues, and there remain concerns that other countries will become further embroiled in the eurozone crisis. The lack of a clear response by European governments is having a negative impact on the economies, financial systems and markets not only of countries within the eurozone but also of countries outside such as the United Kingdom. The situation has been made worse by the recent economic slowdown in Europe and the United States.

In recent weeks, liquidity in the funding markets has tightened significantly with banks that are perceived to be exposed to the eurozone periphery bearing the brunt. As a result of their funding challenges, but also because the capital position of many banks has not been definitively strengthened, many banks in the eurozone remain cautious and reluctant to lend money to companies (and, in some cases, to each other).

Due to the complexity of the various transmission mechanisms within the eurozone, it is difficult to predict with any certainty what the knock-on effects would be if there is a more significant haircut or write-down of Greek debt or an unplanned default, so risk of contagion has come to the fore.

There are multiple ways in which the eurozone crisis might unfold or be resolved. What is clear is that there is no easy solution or quick fix. Some of the possible scenarios and outcomes for the eurozone are outlined in Box 1 of the briefing. The briefing does not comment on the likelihood of the various scenarios or outcomes but focuses on some of the consequences.

See also:

Eurozone Crisis - Some suggested dos and don'ts - May 2012

Copenhagen and beyond - progress in the Eurozone? - Apr 2012

Eurozone 2012 - from crisis comes opportunity? - Mar 2012

The Eurozone Crisis - an indicative approach to contingency planning - Dec 2011

Euro break-up/fragmentation - Impact on financing documentation - Dec 2011




Ian Johnson (partner), Andrew McClean (partner), Sanjev Warna-kula-suriya (partner), Kathrine Meloni (special adviser - financing stream)

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