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What would happen if a country were asked to leave the euro-zone? How would investment banks be affected and what steps can they take now to prepare? Accenture models how the situation might unfold.
A decade ago, it seemed implausible that a country would leave the eurozone. However, given market developments, the scenario—while still unlikely—does not seem so far-fetched. The euro was introduced in phases over a number of years, but if a member were to leave, it could take place in the space of a weekend. The implications for investment banks would be significant, both in the immediate and medium-term.
This Accenture report considers the implications for investment banks if a country were to leave the eurozone.
The architects of the euro meant it to be irreversible, to the point that countries can leave the European Union yet not the euro. This irreversibility was crucial to financial market credibility and enabled access to lower debt servicing costs. Unfortunately, instead of taking advantage of lower borrowing costs to consolidate finances, some governments prolonged unsustainable fiscal policies. As a result, three of the most troubled countries—Greece, Portugal and Ireland—constitute 6 percent of eurozone GDP and 8 percent of its sovereign debt.
Accenture believes that if a country leaves the eurozone, the implications for investment banks would include:
In addition, investment banks would need to:
Given the potential impact and challenges that could result from a country leaving the eurozone, Accenture recommends that organizations begin to plan and prepare for such a scenario.
Stress tests should account for both immediate and medium-term implications. In the short term, investment banks will need to adapt to increased trading activity and various tactical fixes. In the medium term, they will likely need to reconfigure systems and reference data, implement changes to processes across the trade lifecycle and assess their appetite to trade in a new electronic currency (NEC).
December 15, 2011
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