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Greek exit would create 'euro-zone game of Jenga', Natixis warns

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The euro-zone could face a dangerous game of Jenga should Greece leave the currency bloc, with too many unknowns as to where future risk lies, Natixis Asset Management has warned.

The French asset manager said it expected a political solution to Greece’s financial woes, as it was in no party’s interest to see the Southern European country leave the bloc and expose the many unknown risks to stability.

Global chief economist Philippe Waechter said there was a strong risk of a euro-zone breakup if Greece were to leave the union.

“No one wants to take [on] the risk of a breakup because we do not know what could happen,” Waechter said.

He added that the dissolution of the single currency zone could lead to a “very weak” Europe.

“At the moment, we are in a situation where the European institution is viewed negatively, and if you push one country out of the framework, what will happen for others?” he asked. 

“There could be temptation for other countries to exit. We do not know exactly what could happen. It is like [a game of] Jenga, and you have 19 pieces of wood and you don’t know where the risk is.

“There will be an agreement, we need to have an agreement, but we do not know how it will be done.”

Waechter also warned of other possible ramifications, including the classification of government debt.

He said most public debt issued by euro-zone countries was owned by other euro-zone investors, but rarely national ones.

This means, unlike the US, the UK and Japan, in the event of a euro-zone breakup, many countries would find the majority of their issued debt held by international investors with no mechanism in place to organise interest rates.

“It will become hard to manage because we do not know what will be the interest rate parity in a new framework,” he said.

Waechter said Europe as a whole needed to build more internal momentum behind its recovery since globalisation and other economic powerhouses were not going to rescue the Continent from its economic slump.

“There is need for a long-lasting monetary policy [from the ECB] to change the current euro-zone framework of zero growth, zero inflation and zero interest rates,” he said.

“Monetary policy needs to increase one of these zeros.”

For more on the challenges facing the euro-zone, see the most recent issue of IPE

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