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Market Faces 'Vortex' of Europe Uncertainty: Chief Economist

Financial markets across the world are facing a “vortex” of uncertainty due to the euro zone and the high risk of Greece defaulting on its debts, according to Carl Weinberg, the chief economist at High Frequency Economics.

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CNBC.com

“We remain wary of the potential for a hard default, literally at any time and without warning,” said Weinberg in a research note on Wednesday.

The “European financial system remains in a vortex of uncertainty,” according to Weinberg, who believes such a move could result in the dissolution of the euro in its current form.

Following news that Greek voters will be asked to go back to the polls, and the German finance minister saying the election is a vote on whether Greece stays in the euro, investors went into risk-off mode, but Weinberg notes it was not all bad news yesterday.

“The good news is that a debt service payment scheduled for yesterday was reported paid in full,” he said. “This was a principle and interest payment on bonds to investors who refused to participate in the voluntary haircut in March.”

“The payment was contentious, as it rewarded speculators at the expense of Greek taxpayers,” he continued. “It is sure to be debated in the new election campaign.”

Like Weinberg, the team at Capital Economics in London has been very negative on Greece and the chances of the euro surviving in its current form for some time.

“Recent developments in the euro zone have supported our view that a limited form of break-up will commence this year with the exit of Greece,” Jonathan Loynes, the chief European economist at Capital Economics, said on Tuesday.

“In particular, events in Greece have underlined that the recent debt restructuring and bailout package have not brought an end to that country’s huge economic and fiscal difficulties,” he said.

With the effect of European Central Bank support beginning to fade, Loynes believes a crisis of competitiveness and debt within the euro is coming to a head.

“There are more things that the policymakers could do, including bigger bailouts, reforms to boost growth and steps toward full fiscal union. But don’t hold your breath,” he said.

“Core countries remain reluctant to pledge more cash for bailouts, and achieving growth is much easier said than done. Meanwhile, the fiscal compact does not provide a framework for fiscal transfers,” said Loynes, who believes the breakup of the euro is now upon the markets.

“Our central expectation is that Greece will leave the currency unionas soon as 2012, with Portugal—and perhaps Ireland—following in 2013,” he said.