I came across this report from Mike Story, Economist at Western Asset Management discussing four potential scenarios of Eurozone debt crisis
Scenario 1: No Eurozone Restructuring
This is the most optimistic scenario. All 17 members remain within the eurozone.
Scenario 2: Orderly Eurozone Restructuring
In this scenario, policymakers (European Central Bank officials and European finance ministers) battle the market in an effort to ensure stability.
Scenario 3: Disorderly Eurozone Restructuring (unlikely, but possible)
Policymakers are reactive, not proactive. Greece and Portugal give up on austerity, and they default.
Scenario 4: Eurozone Implosion (extremely unlikely)
A Lehman-like scenario occurs in which things spiral out of control and emergency policy responses fail to materialise. Events occur so rapidly that policymakers are unable to respond quickly enough.
In my view, the biggest risk is the indecisiveness of the policy makers. As I commented on Sep 20 when S&P Cut Italy’s Credit Rating from A+ to A, Having been “missing in action” for so long, policymakers still do not seem to get the clue. It becomes increasingly challenging to regain control of this rapidly deteriorating global economy.
If you ever watched movie “2012“, you know the only solution to all crises has to be some form of unity. However, that is always the hardest thing to do in the mankind history.
You can Read the full report here.
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