Traders worked up over Greece's exit from Euro: IG Markets

Risk aversion is heightening at this point in time and can be seen across the global screen. Greece exiting the euro zone is the talk of the town right now and is almost a given, something that markets seem to have priced in.

“The known is really that the Greeks will exit the euro zone. The unknown is what damage it will cost to these weaker economies around the euro zone which are Portugal, Italy and Spain,” says Justin Harper of IG Markets.
In an interview to CNBC-TV18, Harper says that in the event of a disorderly default Germany would be hit the most from the Euro nations. Also, should the Greek’s default and walk away with all these debts unpaid, it might push some of these banks over the edge and so the ECB will have to come in and refund these banks all over again and probably call on the IMF as well. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: For many people on the street the exit of Greece is perhaps almost a given but now the worry is that this could extend to other peripheral markets like Portugal, Spain, Italy, etc. How high is the worry there? What kind of a snowball effect would it have on other European economies?
A: You are right. The markets have priced in a lot of these talks of a Greek exit already. Even if it doesn’t the fact is that the equities have taken a big push downwards. Now the next level is what affect it will have on those peripheral economies looking at Spain and Italy who are in the firing line. Spanish and Italian banks have been downgraded recently and are quite weak so that’s the big unknown. The known is really that the Greeks will exit the euro zone. The unknown is what damage it will cost to these weaker economies around the euro zone which are Portugal, Italy and Spain.
That is what people are trying to work out at the moment and what that is causing is a lot of panic to try and work out what are the implications of that. We have seen equities across the globe, Wall Street, Europe and here in Asia as well all take a big slide because of this fear of just how bad this will affect the other economies within the euro zone.
We won't know anything until a month’s time when the Greek go back to the polls, vote again, see what government is going to come in when they finally decide that they want to leave the euro zone then we’ll see what affect it has on those other economies. So there is a long delay and a lot of uncertainty between now and then. Q: In the event of a disorderly default, what happens to the ECB if they have to go in for recapitalisation, the losses will once again be borne by the member countries. What kind of an effect do you see on Germany or the ECB?
A: I think Germany would be hit hard and they are one of the strongest economies. Then you say - look at Spain and Italy and they are going to see some ECB funding just to keep them in a strong position now but should the Greek’s default and walk away with all these debts unpaid, it might push some of these banks over the edge and so the ECB will have to come in and refund these banks all over again and probably call on the IMF as well.
Of course we have this firewall in place of 500 billion euro which is supposed to bailout an economy if it does go burst, that wasn’t used for Greece but that might be Spain but there is now the danger of Spain, Italy, Portugal, all of these countries being pushed over the edge when Greece leaves the euro and all these debts that it hasn’t paid. That’s why we are seeing a crisis, that’s why we are seeing so many traders and investors worried about the implications of Greece leaving and the huge billions of euro that it owes to these banks and economies.