Morgan Stanley (NYSE: MS) warned that the debt crisis in Greece is setting off a chain of events which could lead to Germany withdrawing from the euro-zone.
“The backstop package for Greece and the ECB’s climb-down on its collateral rules set a bad precedent for other euro area states and make it more likely that the euro area degenerates into a zone of fiscal profligacy, currency weakness, and higher inflationary pressures over time,” wrote Joachim Fels, head of research, in a note to clients.
Morgan Stanley said that a bail-out for Greece may be necessary to avoid a substantial crisis in Europe’s financial system, but also warned that a bailout will “sows the seeds for potentially even bigger problems further down the road.”
