Tuesday, April 17, 2012

IMF April Report - The EU "Tail Risk"

Link to full pdf report is here. The following quote is from page 17:
Tail Risks

Several tail risks are hard to quantify but merit attention:

• The potential consequences of a disorderly default and exit by a euro area member are unpredictable and thus not possible to map into a specific scenario. If such an event occurs, it is possible that other euro area economies perceived to have similar risk characteristics would come under severe pressure as well, with a full-blown panic in financial markets and depositor flight from several banking systems. Under these circumstances, a breakup of the euro area could not be ruled out.
The financial and real spillovers to other regions, especially emerging Europe, would likely be very large. This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse.....

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