Greece is almost certain to default during the coming 18 months, according to Ignis Asset Management’s chief economist.
Stuart Thomson says the country will be unlikely to default on its government debt in the immediate future but it is a “virtual certainty” this will occur in the medium term.
He argues that “the silent run on the Greek banking system”, combined with the execution risks of fiscal austerity and privatisation, increases the chances of the country being hit with another crisis in the next year.
“This will emphasise the fact that adding debt on top of already unsustainable debt levels will ultimately be self-defeating,” the economist adds.
Thomson says that a key issue will be whether the “inevitable” default is orderly or disorderly – with both creating contagion risk for Ireland, Italy, Portugal and Spain but the latter presenting the more severe danger.
“We believe that Greek debt default is manageable, but the resulting contagion to other peripheral economies is not,” he warns.