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UK Weekly Economic Briefing: 24 Feb 2012

9 Pages Oxford Economics February 24, 2012 SKU: OFE3876995

The new Greek financing deal agreed this week has been hailed as saving Greece from default and avoiding a 'nightmare scenario'. But close examination of the details suggests the deal has only a slim chance of success. The assumptions underlying the forecasts of the debt/GDP ratio look very optimistic in terms of growth, fiscal adjustment and the success of the planned debt swap. In our view, for Greek debt to be reduced to a manageable level there will have to be an even bigger write-down of private sector debt and quite possibly significant debt relief from the official sector as well. One possible future for Greece thus involves it remaining in the Eurozone but receiving massive financial assistance for many years to come. But there also are significant risks that the new deal will unravel in the next few months. Greece may have to use coercion to achieve a high enough participation in the planned debt swap, and political and social support for the deal in Greece may also collapse with elections due in April. The risk of Greece being forced out of the euro remains significant. Probably the best that can be said of the new deal is that it may have bought a little extra time to build an effective financial ‘firewall' to protect other ‘peripheral' Eurozone states in the event of a collapse in Greece but even this outcome is in doubt.

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UK Weekly Economic Briefing: 24 Feb 2012

Oxford Economics
February 24, 2012

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