The risk of a Grexit has risen further still this week with the positions of the Eurogroup and the Greek Government seeming to be as far apart as ever. Even if a deal is cobbled together at the latest emergency meeting, it will need to be ratified by several parliaments and possibly even subjected to a Greek referendum. In the meantime, the ECB might pull the plug on the banking system.
If Greece does exit and default, the direct effect on euro-zone banks should not be too severe. But the damage to the public finances caused by the losses incurred on bailout loans could be significant. Meanwhile, of course, there is a risk of financial market contagion, particularly to Spain, which euro-zone authorities might struggle to contain.
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