UBS published a report on Friday commenting on the “Greek case” and providing an update on the fundamentals.
UBS said that the outcome seems very likely to be a mix of several scenarios. Its best scenario would be the rescheduling or renegotiation of the public debt.
The scenario that follows includes some form of Paris Club deal with more aggressive debt restructuring, possibly including haircuts “to put Greece back on a sustainable path”.
Some form of default remains UBS’s central case scenario, while a full default cannot be ruled out. “All these scenarios would be done without Greece leaving the Euro.”
UBS estimates that this year Greece will make another step towards stabilizing its public finances. The upward revisions to the debt and deficit numbers have changed the trajectory, but the Greek government has decided to keep the target for the deficit this year at 7.4%.
UBS expects Greece to achieve this target thanks to “the carry-over of last year’s measures, plus the new measures implemented this year”.
Over the medium term, it estimates that Greek deficit trajectory should thus be the same as previously anticipated, with a deficit shrinking to less than 3% in 2014 and a primary surplus at 6.0% on the same date.
UBS comments that a default is a long and painful process. “If a default was announced, the market would rally, as this would be a sign that Europeans were tackling the issue”.
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