PwC Highlights Four Euro Scenarios; Only One Favorable Near-Term

The European Central Bank (ECB) is aiming to stimulate bank lending, rather than buy bonds, in order to stabilize Europe and the euro area, though nothing has been affirmed.

Ahead of that news, PriceWaterhouseCooper (PwC) issued a report highlighting four possible outcomes for Europe moving forward. Overall, PwC says you should "expect surprises" next year.

And now: The Four Scenarios (of the Apocalypse):

1. Monetary Expansion - The ECB will be given thumbs-up to start injecting liquidity into more vulnerable economies and banks. PwC notes that this scenario will avoid recession (SPOILER ALERT: it's the only scenario to do so). Interest rates will also be kept low near-term, but inflation will rise above the 2 percent target and the euro will depreciate.
   
   
2. Orderly defaults - Qualified countries will be allowed to voluntarily default, which will trigger a contractionary debt spiral and prolonged recession (about 2 to 3 years). Cumulative loss in GDP will be 5 percent through the event.
   
   
3. Greek exit - This scenario has Greece exiting the 17-member union, but it doing so it will see a sharp deterioration in its economy, rapid depreciation of its new currency, and an inflation spike. Meanwhile, euro area members will aim for more fiscal discipline, but will still enter a two-year recession.
   
   
4. New currency bloc - With Germany's Merkel and France's Sarkozy proposing a new bloc, PwC sees some sort of "new euro" to appreciate dramatically with a comparable increase in domestic demand. Economies not included in the new bloc will suffer through depreciation and contraction.

PwC notes that countries which are vulnerable with high debt and deficits include Spain, Italy, Portugal, Ireland, and Greece.

Surplus areas include Germany, Finland, and the Netherlands. France remains in limbo: kind of like Spain, but much more integral to the euro area.

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