A Greek exit from the euro zone would carry significant risks for the global economy and no one should be under the impression that financial markets have fully priced in such an event, the chairman of the White House Council of Economic Advisers said.
The comments by Jason Furman in an interview with Reuters in Berlin are among the strongest by a senior U.S. official and are at odds with those of German Finance Minister Wolfgang Schaeuble, who told an audience in New York last week that contagion risks from a so-called “Grexit” were limited.
“A Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right,” Furman said.
Growing concerns that Greece could run out of cash, default on its debt and eventually leave the single currency bloc have hit Greek markets and weighed on the euro.
But the country’s financial woes have not had a major impact on other peripheral euro zone members like Portugal, Spain or Italy, which have seen their borrowing costs fall substantially since peaking three years ago. And world stocks are near all-time highs.
In an appearance at the Council on Foreign Relations in New York earlier this month, Schaeuble said markets appeared to have “priced in” all possible outcomes for Greece.
But Furman echoed warnings from U.S. Treasury Secretary Jack Lew about underestimating contagion risks.
“I don’t think we should take any comfort from one moment’s financial markets reading. Things can change quickly and we don’t want to be in that situation,” Furman said.
“The lesson of history is that you just never know,” he added. “It would be much better to avoid (a Greek exit) because there’s no doubt it’s a large tail risk” that could impede investment, unsettle markets and “threaten what is otherwise an increasingly successful economic recovery”.
Source: Reuters (Reporting by Noah Barkin; Editing by Stephen Brown)