If anyone’s wondering why the sudden change in tone adopted by the International Monetary Fund and even those angry Germans, a new report by a German consulting group offers a very strong hint.
The report, from Thieß Petersen of Bertlesmann Stiftung and Michael Böhmer of Prognos AG, is titled Economic impact of Southern European member states exiting the eurozone [PDF], opens with this bombshell:
While Greece defaulting on its sovereign debt and leaving the European Monetary Union would in and of itself have a relatively minor effect on the world economy, such a move could, however, undermine investor confidence in the Portuguese, Spanish and Italian capital markets and thus provoke not only a sovereign default in those states as well, but also a severe worldwide recession. This would in turn reduce economic growth by a total of 17.2 trillion euros in the world’s 42 largest economies in the lead-up to 2020. Hence it is incumbent upon the community of nations to prevent Greece from a sovereign default as well as leaving the euro, and the domino effect that this event could induce.
More from Reuters:
A Greek exit from the euro zone could trigger a global economic crisis of dire proportions and must be avoided at all costs, a respected German think tank said in a study published on Wednesday.
Chancellor Angela Merkel’s centre-right government has strongly criticized Greece’s repeated failure to meet tough fiscal targets since its debt crisis erupted in late 2009 but has recently stressed it wants Athens to stay in the euro zone.
“A Greek exit from the euro carries the risk of a European and even international conflagration and could trigger a global economic crisis,” Bertelsmann Foundation said, citing the study it commissioned from Prognos AG.
Greece’s departure would entail costs for the country, already in its fifth year of recession, totaling 164 billion euros, or 14,300 euros per capita, until 2020, said the study, which ran a cost analysis of various scenarios.
A ‘Grexit’ would create pressure for the other heavily indebted southern European countries – Portugal, Spain and even Italy – to leave the common currency, a development that it said would threaten “a dramatic international recession”.
“The 42 most important economies would suffer total economic losses of 17.2 trillion euros (in that worst case scenario),” the think tank said.
Still more from Capital.gr:
But the scenario would become even more dramatic if Spain’s exit were to be taken into the equation.
If Spain were to leave the Eurozone as well, declines in growth in Germany would increase to 850 billion euros by 2020, with outstanding debts of 266 billion euros being waived.
In the USA, it would mean a loss of growth to the extent of 1.2 trillion euros and in the 42 countries under review it would result in losses of 7.9 trillion euros.
Even the accumulated per capita losses would soar upwards in this scenario.
The result would be a loss of 10,500 euros per capita over eight years by 2020 for Germany, a loss of 3,700 euros in the USA and as much as 18,200 euros in France and 16,000 euros in Spain respectively.
The situation would spiral totally out of control if the Euro crisis were to reach the point where Italy would also have to leave the Eurozone: Germany would be giving up 1.7 trillion euros and would have to write off 455 billion euros.
Here economic losses in Germany with more than 21,000 euros per capita would in some cases be even higher than in the exiting countries Greece with more than 15,000 euros, Portugal and Italy with nearly 17,000 euros as well as Spain’s 20,500 euros.
The impact of other countries leaving the currency union would be more dramatic:
- If Portugal went, Germany would lose €225 billion by 2020 and would have to write off credit amounting to €99 billion. Global losses in growth would add up to €2.4 trillion, with the US having to bear €365 billion and China €275 billion, respectively.
- If Spain were to go as well, Germany would lose €850 billion in GDP by 2020 and would have to waive €266 billion of credit. The US would lose €1.2 trillion in GDP, and the 42 countries under review would lose €7.9 trillion.
- If Italy, the euro zone’s third largest economy, were to leave, “the situation would run totally out of control,” the study said. It estimated that Germany would lose €1.7 trillion in GDP and would have to write off €455 billion in credit. German unemployment would increase by more than one million by 2015. There would be a “severe international recession and global economic crisis,” the Bertelsmann Stiftung writes. The biggest losers would be France, followed by the US, China and Germany.
“In the current situation we have to make sure that the crisis in Europe does not turn into a wildfire,” warned Aart De Geus, Chairman of the Bertelsmann Stiftung’s executive board.
Gee, those numbers are big enough to cause worries for political leaders otherwise so intent on enforcing the austerian line.
But the looting class, also sure to see crisis as opportunity, just might see another round of crisis as a chance to pick up what they haven’t grabbed already.