Euro area exit risk is very low - Greece aside - but could rise this year: Moody's

In a report released on Tuesday, Moody's Investors Service said that aside from Greece, the likelihood of a country leaving the euro area remains very low. However, the possibility has the potential to increase materially this year given the rise of anti-EU political parties in the region. 

Key points:

“Any exit from the European single currency would be an existential moment for the euro area and would demonstrate conclusively that the currency union was not indivisible.”

“The exit risk is reflected both in Moody's euro area bond ratings and euro area country ceilings, which capture risks affecting a given country that arise from political, institutional, financial and economic factors either within that country or externally.” 

“In a currency union like the euro area, the main irreducible credit risk that Moody's country ceilings reflect is the risk of the country exiting the euro area and redenominating all domestic debts into a new, weaker currency.” 

“A country leaving the euro area and redenominating its currency would not necessarily automatically result in a default, however. In that situation, Moody's would in particular focus on any change in the financial value of debt obligations relative to the original contractual promise.”