Major international banks are optimistic that there will be a rally and a complete rebirth in the stock market in case Greece proceeds to exit the currency union. They believe that in case of such an eventuality, global authorities will have no other option but to flood the world system with massive liquidity.
The BoA has announced that expects a severe short-term clutch in risk investments after more speculative funds slow down positions starting with a climb in tattered bank stocks along with Club Med Bonds. The bank also expects the bank to rise by 10 points to hit $1.40 against the USD following a slump to $1.20 right after the panic.
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The benign result suggests that the ECB comes in handy with enough support from the US Federal Reserve, BoJ, and other important central banks in line with 2008-2009’s concerted action.
The Bank of America insists that the EU will relinquish its limits in order to help Greece remain in the Union as they consider the real risk of contagion. In the event that the idea does not work, it anticipates a couple of dramatic actions.
The ECB plans to cut borrowing rates, give more Quantitative easing, and launch a mass stock buying program in Spain and Italy. They will also provide more capital to banks and develop a pan-European scheme of deposit securities. All these efforts are expected to have a major impact on the Euro.
David Bloom, the chief of finance at HSBC says that the crisis in the Euro is now over. He also adds that key central banks have an obligation of offering massive help, which will serve as a soothing ointment for the markets. David also noted that the Fed has its doors open for additional QE promising that a strong rally is on the way.
Mr. Bloom expressed his dissatisfaction with the way the ECB is handling this matter saying that it does not have to wait for compliance from the EUM’s wayward nations. He said that by doing so, the bank will be holding everyone right at the bottom of the deep financial pit until they call for help.
A monetary union without the burden of Greece is likely to seen as a strong bloc by the traders, but a lot depends on how Greece will fare.
Right now, the worst that can happen to the currency union is a double whammy. This can only happen if the authorities are unable to control the wide infection of the EMU and Greece finds its way out of the current crisis. This means that Greece would make profits from the devalued currency.
Bloom says that in case of such an occurrence the Euro would collapse dramatically. He is however certain that such a scenario is unlikely.
Gary Jenkins, a bond adviser has however warned that people betting on a collapse should be careful saying that world central banks are expected to flood massive liquidity that will render the LTRO a small change.
He also said that this is the time for the ECB and EU leaders to show that they are financially capable of purchasing debts on the minor market. He also noted that the situation right now is either quasi-financial union or a bust.
The bond adviser also warned that it will be fatal for the union if Greece were exited in acrimony. Such an event would cause massive losses of up to 200billion Euros for the currency union. This will in turn damage the much needed political consent to build the EU financial union and put Euro zone members together. He therefore urged the authorities to ensure that whatever they come up with is for the benefit of Greece.
Seeped out reports from Berlin propose that Germany’s treasury has created a plan that would see them rescue Greece with funds from the EU in case of a return to drachma.
Bank of America suggests that the exit of Greece from the Euro and the contagion would cause a drop of 4 points in Euro zone GDP. It also suggests that the recovery from such damages would be slow. Range for financial incentive is largely worn out. China together with the up-and-coming powers is unable to stabilize.