Greece's exit from the euro would strike a severe blow to global mergers and acquisitions (M&A) activity if not managed carefully, according to a report by legal firm Baker & McKenzie.
Using financial modelling, it predicts that over the next five years, the overall value of M&A transactions will be $1.4trn (£900bn) lower if there is a “disorderly exit”.
This is because of the uncertainty that would be created for financial markets, leading to long-term lower equity prices, increased bond yields and lower business confidence and investment.
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In Europe excluding the UK, a worst-case scenario would cause M&A activity to be around 45 per cent lower in 2016 than would be the case if Greece stayed in the single currency. Volumes would have difficulty recovering, and by 2020 it is predicted there would be a £331bn loss in M&A transactions.
If the exit is well managed by the government and central banks, with all precautions taken and the transition to a new currency rigorously overseen, the report claims the situation wouldn't be quite so bad – Europe's cumulative decline in transactional activity would amount to just £31bn over the five years.
If a Grexit is achieved in an orderly and coordinated manner, then financial contagion should be contained, avoiding substantial disruption outside of Greece.
Bad news for the UK
Because the UK has such close ties with the Eurozone, it is also very vulnerable to the effects of a disorganised Grexit. Loss in M&A activity could reach 39 per cent, or £31bn, over the course of 2016, amounting to a total of £110bn by 2020.
Transactions in the U.S. and China may would also suffer, with lost deals amounting to about £455bn in the two countries over the next five years.