World Bank President Robert Zoellick said Wednesday if Greece leaves the EuroZone, it may have ripple effects comparable to the collapse of Lehman Brothers in Y 2008.
The debt-ridden European country faces political economy questions, not simply economic issue, Mr. Zoellick said in a forum sponsored by the Economic Club of Washington, DC
The World Bank boss contends the core question for Europe will not be Greece, but Spain and Italy. The Spanish and Italian governments are undertaking some very difficult fiscal reforms and structural reforms, which are Key to future growth, the outgoing World Bank President told the audience.
The danger for Greece is that if Greece does leave, frankly there has to be a lot of care taken to how that is done, Mr. Zoellick cautioned, adding that it makes him think of the fall of Lehman Brothers.
Where the danger comes in is when events come, they start to affect confidence and you get illiquidity moments, said Mr. Zoellick, who also believed the Key issue the European countries have to come to terms with is if you have medium-term reform, you need some sort of medium term insurance for investors.
Mr. Zoellick said he does not favor Euro bonds all the time because it may loose fiscal disciplines on the states, but it can be used for a limited time. He also mentioned using the European Stability Mechanism fund to stabilize European economy, which he said, is more likely to occur.
Greece's future in the EuroZone came into question after political parties failed to reach an agreement on a governing coalition.
The country's political turmoil fueled fears among investors and caused large-scale deposit outflows from Greek banks since Monday, aka the dreaded run on banks.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.