Friday 30 September 2016

Irish banks at risk if Greece quits Eurozone - Moody's

Published 23/06/2015 | 02:30

Greek Finance Minister Yanis Varoufakis, left, speaks with Irish Finance Minister Michael Noonan at the start of the annual meeting of the European Stability Mechanism Board in Luxembourg on Thursday, June 18, 2015. German Chancellor Angela Merkel is pressing Greece to deliver on commitments to carry out reforms, stressing that she wants the country to remain in the common currency. (AP Photo/Virginia Mayo)
Greek Finance Minister Yanis Varoufakis, left, speaks with Irish Finance Minister Michael Noonan at the start of the annual meeting of the European Stability Mechanism Board in Luxembourg on Thursday, June 18, 2015. German Chancellor Angela Merkel is pressing Greece to deliver on commitments to carry out reforms, stressing that she wants the country to remain in the common currency. (AP Photo/Virginia Mayo)

Irish banks and those in other peripheral Eurozone countries would be vulnerable in the event of a Greek exit from the Eurozone, Moody's has warned.

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Just days after Finance Minister Michael Noonan said he believed there would be no contagion effect, the ratings giant said banks here and other countries remain weighed down by legacy issues from the crisis which could prove problematic.

"Banks in the periphery markets have strengthened their financial positions in recent years," said Sean Marion, a managing director in Moody's London-based banking team. "But legacy issues from the previous crisis still weigh on their ability to return to full financial health, while they are also more susceptible to restricted market access and higher cost of wholesale funding in the event of an adverse shock, given their more limited balance sheet flexibility."

Moody's published a report yesterday highlighting the potential impact that a Greek exit would have on the Eurozone's banks.

It said that overall, Eurozone banks were better prepared to weather an exit than at the height of the Eurozone crisis, as exposure to Greece has been reduced.

But it said that a Greek exit would have "severe direct consequences" for Greek banks, which would likely result in a deposit freeze, and possibly broader capital controls.

"The likelihood of a default by the Greek government has increased throughout the first half of the year, and the risk of Greece leaving the European Economic and Monetary Union has escalated," the Moody's report said.

"While negotiations with its European partners have continued, Greece's liquidity position has deteriorated further, as reflected in our downgrade of the sovereign rating."

The Moody's report warned that a Greek exit could have "material consequences" for the entire euro area.

"The exit of a member state from the single currency bloc, which was built to be irreversible, would damage confidence in the region in the immediate aftermath and raise concerns of other countries following suit over the longer term."

Finance Minister Michael Noonan said last week that he didn't believe there would be a contagion effect from a Greek exit or default.

But Mr Noonan said the Department of Finance, the NTMA and Central Bank have been discussing a possible exit at a ''high level''.

Irish Independent

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