Brown Brothers Harriman’s Chandler: Greece Will Default

The euro crisis will continue to rage in 2012, as the continent’s economic woes linger on, says Marc Chandler, chief currency strategist for Brown Brothers Harriman.

“The eurozone is really adopting fiscal austerity,” he tells Yahoo. “That means they’re going to be in for a deep and protracted recession.”

As for Greece, while banks holding the government’s bonds have agreed to take a 50 percent write-down, prices in the bond market indicate the banks are suffering almost a 70 percent haircut, Chandler says.

“To say that people aren’t going to get half their money back from Greece is taken for granted,” he says. “The key issue is whether Greece has to drop out of the eurozone.”

Chandler doesn’t think it will, as secession is no cure for Greece.

With its foreign debt still denominated in euros after secession, “we’re not talking about a 70 percent haircut anymore, we’re talking probably 100 percent default,” Chandler says.

There would be a horrible banking and political crisis. And then it would spread to other eurozone nations, such as Portugal and Ireland, he says.

“It’s not like a cancer you just cut out."

Some experts say Italy represents the key to the euro’s survival.

“If the Italian yields start to rise, you could quickly turn a manageable situation into an insolvent one,” Nobel laureate economist Michael Spence of New York University tells Bloomberg.