Greece and Europe: the sequel of political will, Time and Value-at-Risk

In the aftermath of the Greek elections, solving the debt issue (to avoid a default) is the priority. However, more options seem to be on the table this time. We expect: first, an extension of the current bailout; then, a new precautionary credit line should follow by end-2015, accompanied by further debt relief in the form of frozen interest payments on EU and IMF loans for a limited period of time and longer loan maturities.

For now, our baseline scenario for Greece remains unchanged: GDP growth of +1.4% in 2015 (+1.8% in 2016); business insolvencies to fall by -4% (-8% in 2016). However, time and policies will be critical to keep this momentum. Lasting uncertainty and harming competitiveness too fast could lower GDP growth by as much as 0.5pp this year. Europe can afford to be (more) patient with Greece.

Though the Greek Value-at-Risk has shrunk by 40% for corporates to 70% for financials, the impact of a Grexit (5% likelihood) will still be unprecedented and systemic.