"The implications of a nation leaving the Euro (and its contagion effects) are becoming clearer but are by no means discounted by the market. The risk of an interruption in the Greek adjustment program has increased significantly - and as Goldman notes - is the most likely eventual outcome for Greece and fears of the missed interest payment in June continue to concern many. The tough decision and dilemma for the international community remains between a rock (of acquiescence and just funding a belligerent member state) and had place (ECB deciding to let Greek banks go) with an odd middle ground seemingly the most likely given Europe's tendency for avoiding the hard decisions. There is no doubt that the near term implications from such an unfortunate turn of events would be profound for markets; fiscal risk premia would widen, the EUR would decline in value and European equities would underperform. The true question though, is how much lasting damage such a situation can do and whether, in the long run, systemic risks can be contained. In principle, to the extent that no other country chooses to go down the same path as Greece, there is no political or practical hurdle for the ECB to crucially safeguard the stability of the Euro area with unlimited liquidity provisions. A liquidity driven crisis can be averted in that sense. Whether risk premia stay on a higher tangent after such an event is a separate and complicated question but game-theoretically it strengthens the renegotiating position of Ireland, Portugal, and obviously Spain with the ECB (and implicitly the Bundesbank) being dragged towards the unmitigated print-fest cliff..."
at http://www.zerohedge.com/news/greeces-systemic-risk-impact
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