European debt crisis: Worst-case scenarios

What would happen if Greece, Spain or Italy were to default? Deutsche Bank, RBS and other investment research firms have released reports detailing the domino effect of a collapse of a single country in the euro zone. Here’s the doomsday scenario.

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Greece defaults on its debt, setting off a chain reaction of events that will eventually reach every corner of the global financial system.

Petros Giannakouris / AP

Investors and consumers lose faith in Greek banks, which lent heavily to the Greek government, triggering a bank run. Riots ensue. The government falls.

Petros Giannakouris / AP

The other European countries convene an emergency meeting. They consider radical action — booting Greece from the euro zone — and some of the stronger countries consider leaving themselves. But even as they are discussing alternatives the panic is growing.

John Guillemin / Bloomberg

Citizens of other vulnerable European countries – Spain, Italy and Portugal — begin transferring money overseas, an event that involves such a tidal shift of funds that banks in those countries begin to collapse. According to one scenario by RBS: “Greece defaults by December, Portugal and Ireland suffer renewed contagion, Spain, Italy and France suffer from contagion.”

Jason Alden / Bloomberg

In the United States, where the economy has been teetering on the brink of another recession, Treasury Secretary Timothy Geithner urges the stronger European countries to bail out their neighbors, but his European colleague’s hands are tied. The European Central Bank does not have the same powers as the Federal Reserve had in 2008 to stop an economic crisis from expanding.

Joshua Roberts / Bloomberg

Leaders of the stronger northern European countries, especially the smaller ones, pull out of the euro, leaving their weaker neighbors to struggle on their own.

Bernd Kammerer / AP

Stock markets all over the world plunge. According to Deutsche Bank, world stocks could “lose up to 35% of their value if the situation deteriorates into a full-blown financial crisis on the scale of the fallout from the collapse of Lehman Brothers in 2008.”

Thanassis Stavrakis / AP

Demand from Europe falls, hurting the economies of the United States and China, plunging the world into recession for the next two years.

Tim Rue / Bloomberg

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European debt crisis: Worst-case scenarios

What would happen if Greece, Spain or Italy were to default? Deutsche Bank, RBS and other investment research firms have released reports detailing the domino effect of a collapse of a single country in the euro zone. Here’s the doomsday scenario.

Featured Photo Galleries