The five lines of Greek contagion

I eventually expect Greece to exit from the eurozone. It is anybody’s guess when that will happen. It could be this week, this month, this year or this decade. It basically has no choice given that so long as it stays in the zone it’s economy will not recover. It needs a much lower real exchange rate to restore investment and employment in the absence of current account deficit led growth and the path of internal devaluation is far too slow and painful for politics to cope. Here is the real effective exchange rate:

When that exit comes there are five lines of contagion to watch.

1. Equity markets