Tags: Citi | Greece | Exit | Eurozone

Citi Sees 75% Chance Greece Will Exit Eurozone

Monday, 07 May 2012 08:59 AM

There's a 75 percent chance Greece will abandon the euro although the chances of the entire currency zone breaking up are remote, Citi analysts conclude.

In Greece, established political parties failed to secure 50 percent of the votes in parliamentary elections, with far-left and far-right parties gaining popularity.

While the outlook remains unclear, the results show growing anger at austerity.
Greek voters will likely be asked to vote again, which could result in a government rejecting austerity measures demanded on the country in exchange for bailout money arranged by the so-called "troika" of the European Commission, the European Central Bank and the International Monetary Fund.

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"With the outcome of the election, to us the probability of a Greek exit is now larger than our previous estimate of 50 percent, and rises to between 50-75 percent," Citi analyst Guillaume Menuet writes in a research note, according to CNBC.

"However, even after the elections in Greece, France and Germany, we regard the probability of a broad-based break-up of the monetary union as very low. We continue to expect that in reaction to Greece leaving the euro area, more far-reaching measures from governments and the ECB would be put in place."

In France, socialist Francois Hollande swept into victory over Nicolas Sarkozy, a move seen as a proxy on the outgoing administration's support for belt-tightening austerity measures.

In Germany, voters in the Schleswig-Holstein state went to the polls, where established political parties saw competition from newer ones.
Markets tanked on election results, especially with a lack of direction in Greece.

"It creates more turmoil in the short-term," says Peter Cardillo, chief market economist Rockwell Global Capital, according to CNNMoney.

"There's talk of Greece leaving the euro; I don't think it's going to happen, but it hypes the fear factor over Europe. Until the dust settles, it'll be all about Europe."

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