Greek default now 'unavoidable', says Ernst & Young

Greek demonstrators burn copies of emergency tax notices
Image caption Ernst & Young says the eurozone debt crisis shows no sign of abating

A Greek default "now seems unavoidable", according to analysts at business services group Ernst & Young.

The firm's quarterly Eurozone Forecast also says that the chance of recession in the euro bloc has increased sharply.

Rising financial tensions and a near stalling of economic growth means "there is a real danger that events will overtake policymakers", it said.

The key question on Greece is when a "default will occur and how it will be managed".

The Ernst & Young (E&Y) report says: "Authorities have been slow in trying to tackle the problems facing Greece, Ireland and Portugal.

"It was hoped that the rescue package for Greece announced in July would bring to an end the long period of indecision and uncertainty."

But the report adds: "The eurozone sovereign-debt crisis shows no sign of abating."

As well as a Greek default, E&Y predicts there is a 35% chance of the eurozone economy slipping back into recession.

The report predicts that gross domestic product in the euro area may rise by 1.6% this year, instead of 2% forecast previously, before slowing to an "anaemic" 1.1% growth rate in 2012.

"The [European Central Bank] ECB should lower interest rates to below 1% should the eurozone fall back into recession," it said.

The ECB is "the only institution with some room for manoeuvre since governments cannot or do not want to relax fiscal policy".

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