MercoPress. South Atlantic News Agency

Could the Greek Crisis Spell the End of the Euro as a Currency?

European economist and Royal Bank of Scotland strategist Jacques Cailloux

If Greece was to default it would effectively spell the end of the Euro as a currency, according to Royal Bank of Scotland's (RBS) strategist and chief European economist Jacques Cailloux.

The yields on Greek debt spiked again this week, breaching the psychologically important 10% barrier, as the country suffered another downgrade and news broke that its finances were in worst shape than previously feared.

In a research note Cailloux—from the Royal Bank of Scotland (RBS)—debates whether the Eurozone loans—which it appears will inevitably form part of Greece rescue—will be senior to the country's own debt in case of default.

He points out the seniority of the Eurozone loans would actually defeat the whole purpose of the backstop facility that was designed to protect Greece from default.

He said: “A seniority of Euro area loans would create no incentive for investors to hold Greek debt; quite the contrary as it would lower the probability of recovery in a default scenario. The political commitments from the Euro area needs to, and will in our view, translate in an absence of seniority of Euro area loans to Greece”.

However, it is Cailloux's views on what a Greek default would mean for the Euro that have caught attention. He said his research note was essentially academic, because he believes Greece defaulting would be tantamount to the end of the Euro as a currency.

He said: “We are not sure that the debate surrounding seniority is actually relevant as it would only matter in a context of default, a scenario which would equate in our view to the end of the Euro, a scenario we do not envisage”.