15 September 2011 16:17 [Source: ICIS news]
By Joe Kamalick
WASHINGTON (ICIS)--It is not so much a question of whether ?xml:namespace>
A Greek default, perhaps within weeks, would trigger a new contagion of contraction in
“Let us take as a given that
When that happens, Weinberg said in a note to clients this week, the result will be a shutdown of commercial credit throughout Europe and the onset of a years-long depression in the region that will infect the US, Asian and Latin American economies as well.
Given European and some US banks’ exposure in Greek bonds, the dominoes will fall quickly, Weinberg said.
“Repricing bonds with nominal face values of €3,000bn [$4,110bn] to 50 cents on the euro will impair the balance sheets of the banking system so much that banks will be forced to stop lending,” he said.
“Without credit, economies will atrophy. Without credit – and with government spending impaired in major EU economies – euroland will fall into an economic depression from which it will not escape for years,” Weinberg said, adding: “That is our forecast.”
That dire outlook is not an extreme view.
Kris Bledowski, counsel director and economist at the Manufacturers Alliance, and a eurozone specialist, shares much of Weinberg’s dour forecast for the European debt crisis.
“But Athens is supposed to meet three conditions to qualify for the tranche: structural reforms; a bundle of steps that Greece has to take on a schedule; and, third, numerical targets on revenue from privatisation,” Bledowski noted.
“But come this month or October,
Bledowski suggested that the IMF and ECB could go forward with the €8bn tranche to
In either timing scenario, Bledowski agrees with Weinberg that the Greek default would first hit Europe’s banking sector because it is so heavily exposed to
“They would have to write down those losses, and banks will go into an extremely conservative, defensive position,” he said. “Europe is more monetised on the banking side than the private sector, and a lot of businesses in
“Then at that point a new European recession is very likely,” Bledowski said. “Europe today is much closer to the floor, so to speak, than the
But even if Europe slips into a recession rather than a depression, “there would be [a] substantial effect on the
Bledowski does not think a Greek default on its own would necessarily tip the already-wobbly
“But should there be a dramatic additional crisis in Europe, a panic, a dramatic collapse of confidence, Greece leaving the eurozone, then sentiment would be hugely impacted and a recession in the US would only be a matter of time,” he said.
Kevin Swift, chief economist at the American Chemistry Council (ACC), also agreed that the dark HFE forecast “is a very plausible, believable scenario”.
“The EU sovereign debt situation is the biggest risk to the world economy, and by extension the
“The EU represents about 25% of global GDP,” he noted. “If
He said that US chemical industry exports to
Larry Sloan, president of the Society of Chemical Manufacturers and Affiliates (SOCMA), sees a Greek default and a likely EU recession as having a double impact on US chemicals.
He said that weakened consumer demand in Europe will trickle up through the manufacturing supply chain, and first adversely affect direct
But it would eventually also impact domestic
“This is not good news for the overall
In the middle of the week,
Germany's Chancellor Angela Merkel on Wednesday strongly rejected suggestions that
There is also opposition to more IMF and ECB blank cheques for
So if Merkel cannot round up a solid EU front to fund ongoing monetary transfusions to
What happens next is anyone’s guess.
“We can only speculate, because we have never seen anything like this before,” said HFE’s Weinberg.
European Commission president Jose Manuel Barroso told the European Parliament this week that the eurozone debt crisis “is the most serious challenge of a generation”.
($1 = €0.73)
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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