"Greece and the EU are currently engaged in a game of financial chicken with both sides talking tough ahead of the general election on 17 June," he said. "We do not see a happy outcome and have brought forward a Greek departure from the euro to the third quarter of this year as the EU and ECB cut off funding."
"In response we expect the ECB and central banks around the world to pump liquidity into the system, thus limiting contagion and preventing any further break-up of the euro. EU policymakers may also need to offer guarantees to bank account holders and adopt a more pro-growth stance to reassure markets."
"Policy will need to remain loose to support the remainder of the periphery where recession is expected to drag on into 2013."
While Wade expects there to be some contagion, he does not anticipate a global recession.
"The weakness of the eurozone hits activity elsewhere through trade and heightened risk-aversion in the financial sector," he said.
"However, with the US continuing to grow, albeit weakly, and China avoiding a hard landing, the world economy is not expected to drop back into recession. For a double-dip we would need to see one of our two scenarios: a wider euro break-up, or political deadlock in the US such that the economy falls over the fiscal cliff."
Azad Zangana, European economist at Schroders, thinks there is still a real chance that Spain and Italy could be at risk of defaulting.
He commented: "The big risk for Europe will be whether contagion becomes a bigger issue for Spain and Italy following the events in Greece.""Banking deposits have been flowing out of Greek banks for some time, but they are now leaving Spanish banks too. The ECB will have to step in with more liquidity, but even then we cannot be totally certain that it can control the contagion."
"For now, we sit and wait for policy makers to take action, with the knowledge that we may need to see markets deteriorating further before relief is provided. This keeps the risk of a disorderly outcome high and we cannot be totally certain that when the flood of liquidity comes it will be enough to put out the fires," he finished.