The Bank of England is warning that a Greek debt default could ripple across global financial markets, possibly triggering a global economic collapse and stock market crash in 2015.
In the Financial Stability Report, U.K. central bank Governor Mark Carney said, “the risks associated with Greece and its failure so far to reach a deal with its international creditors have grown acute, and threaten to trigger a selloff in financial markets that could ripple through to the wider global economy.” (Source: The Wall Street Journal, last accessed July 2, 2015.)
Since the debt crisis started to fall apart a few days ago, international financial markets suffered dramatically. Greek people are expected to vote on a referendum on Sunday on whether or not the country should accept the painful series of financial reforms offered by its creditors.
The defiant Prime Minister Alexis Tsipras urged Greeks to reject an international bailout deal. Uncertainties over the fate of the country has been hitting its highest level over the last few days, as there is no indication of further talks on a fresh bailout for Greece until the country holds its referendum on Sunday.
“The situation remains fluid, and it is possible that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” Carney said. He also warned that it could ultimately hurt the confidence of businesses and households in Britain.
As it stands, all evidence suggests that Greece is set to exit from the eurozone unless it can reach a deal with its European and international creditors. However, on Wednesday Carney acknowledged that the risks surrounding a possible Greek exit are less than they were in the earlier stages of the crisis.
Prior to the failure in talks, many countries like the U.S. and the U.K. have repeated that their economies have minimal direct exposure to Greece and that their financial systems are resilient to the crisis. However, there are still concerns a Greek debt default could spread to other countries in the eurozone and eventually to the U.S. economy.