Global risk

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Multiple countries withdraw from the euro zone

Very low probability, Very high impact; Risk intensity =

November 16th 2018Introduction

The ascendancy at the recent general election in Italy of parties espousing criticism of the EU showed a lack of faith in European integration and has seen speculation reemerge about the prospects for the wider euro zone.


Although few in Italy are calling for the country's departure from the currency union, support for such a move could rise if the new government does not adequately tackle the economy's structural problems, which undermine competitiveness and make controlling the public finances difficult. Greece's exit from the currency union remains a worrying prospect. Greece's problems are largely country-specific, such as the ingrained corruption of its oligarchy, a lack of foreign investment (resulting from closed sectors, protectionism and hostility to foreign ownership) and a resultant lack of competitiveness. As such, Greece's withdrawal would not pose a systemic risk to the bloc, especially as the European Central Bank would intervene to limit contagion. Nevertheless, a Greek exit could still provoke demands for greater autonomy elsewhere. Indeed, the economic difficulties across southern Europe have illustrated the fundamental problems posed by a single currency zone without a concurrent fiscal union.


If multiple countries were to leave the euro zone, they would suffer large currency devaluations and be unable to service euro-denominated debts. In turn, banks would suffer huge losses on their sovereign bond portfolios and the global economy could be plunged into recession.