Again, confirmation of our February 23 and later postings; From BusinessInsider – ERNST & YOUNG: If Oil Rises To $150, At Least One Eurozone Country Will Default:
If the price of Brent crude oil surges to $150 a barrel, one eurozone country will default and the whole region will fall into recession, according to Marie Diron of Ernst and Young (via Ambrose Evans-Pritchard).
The result of this rise would be particularly bad for Ireland, where the economy would shrink by 3% in 2011 as a result. Even worse, according to the report, if Brent crude prices hold around $120, which seems more likely, Ireland is still going to see its GDP shrink by 2.6%. Brent is around $116 right now.
Ambrose Evans-Pritchard writes in the Telegraph – German-Irish brinkmanship raises EMU stakes:
The EU dispute comes as the latest oil spike queers the pitch for vulnerable countries on Europe’s fringes. A report by Ernst & Young warns that if oil stays near $120 for the rest of this year, it will cut EMU growth to just 1.1pc this year and 1.2 next.
“We think the peripheral countries would suffer most. Spain, Greece, and Portugal face a double whammy since they have no room to offset the oil shock by slowing the pace of fiscal consolidation,” said the author, Marie Diron. Oil at $150 would tip the eurozone back into recession, with the risk of cross-border bank contagion and default by at least one country.