Citigroup: Risk of Greek Exit From Euro Has Risen to 50%# Stock
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Source: WSJ
Citigroup on Monday raised its estimate of the likelihood of a Greek exit
from the euro area over the next 18 months to 50% from a prior range of 25%
to 30%, according to the bank’s latest “Global Economics View” analysis
by economists Willem Buiter and Ebrahim Rahbari.
“This is mostly because we consider the willingness of [euro area]
creditors to continue providing further support to Greece despite Greek non-
compliance with programme conditionality to have fallen substantially,” the
report writes.
Buiter and Rahbari believe the cost of Greece leaving the 17-nation currency
bloc would be “moderate” because policy makers would act to protect other
weak euro-zone economies from further contagion following the unprecedented
exit.
They also expect that Greece’s long-negotiated private-debt restructuring
will be done in an orderly, albeit coerced, manner. They also believe the
European Central Bank will end up restructuring its holdings of Greek bonds,
a proposal that has proved very controversial over the last few weeks.
“We think that the Greek government will achieve an orderly but most likely
coercive debt restructuring in its current negotiations with private
creditors about private sector involvement and with the [European Union, ECB
and International Monetary Fund] on ECB involvement,” the economists wrote.
“Greece is therefore likely to avoid disorderly default when its next bond
redemption is due (which is on March 20, but a seven-day grace period
applies),” Buiter and Rahbari added, pointing out that in order for Greece
to receive a second bailout from euro-area countries and the IMF, it will
have to “a minimum degree of compliance with the fiscal and structural
conditions of the bail-out programme. Alternatively, it could choose to
temporarily cede authority over certain budgetary decisions to EU/EA
representatives.”
Citigroup on Monday raised its estimate of the likelihood of a Greek exit
from the euro area over the next 18 months to 50% from a prior range of 25%
to 30%, according to the bank’s latest “Global Economics View” analysis
by economists Willem Buiter and Ebrahim Rahbari.
“This is mostly because we consider the willingness of [euro area]
creditors to continue providing further support to Greece despite Greek non-
compliance with programme conditionality to have fallen substantially,” the
report writes.
Buiter and Rahbari believe the cost of Greece leaving the 17-nation currency
bloc would be “moderate” because policy makers would act to protect other
weak euro-zone economies from further contagion following the unprecedented
exit.
They also expect that Greece’s long-negotiated private-debt restructuring
will be done in an orderly, albeit coerced, manner. They also believe the
European Central Bank will end up restructuring its holdings of Greek bonds,
a proposal that has proved very controversial over the last few weeks.
“We think that the Greek government will achieve an orderly but most likely
coercive debt restructuring in its current negotiations with private
creditors about private sector involvement and with the [European Union, ECB
and International Monetary Fund] on ECB involvement,” the economists wrote.
“Greece is therefore likely to avoid disorderly default when its next bond
redemption is due (which is on March 20, but a seven-day grace period
applies),” Buiter and Rahbari added, pointing out that in order for Greece
to receive a second bailout from euro-area countries and the IMF, it will
have to “a minimum degree of compliance with the fiscal and structural
conditions of the bail-out programme. Alternatively, it could choose to
temporarily cede authority over certain budgetary decisions to EU/EA
representatives.”