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Tags: Greek | Exit | Euro | doom

Sense of Doom Dominates Predictions of Greek Exit From Euro

By    |   Monday, 14 May 2012 11:35 AM

A huge sense of doom is pervading the eurozone as the chances of a political agreement to end Europe's recession and preserve the eurozone seem to grow smaller by the hour, according to CNBC.

Greece has failed to form a new government after voters rejected major parties that favored austerity and anti-austerity parties gained seats. That means Greece may have to hold new elections in which voters may completely reject the austerity measures Greece that agreed to as part of an international bailout package.

Many experts say Greece will leave the euro in a "Grexit." For instance, Citi economists say the odds of Greece leaving the common currency are between 50 and 75 percent, according the CNBC commentary.

Others, like economist Nouriel Roubini, say Greece must leave to have any chance of regaining prosperity.

Carl Weinberg, of High Frequency Economics, predicts the new Greek government will probably reject austerity imposed by the bailout terms, but European leaders will postpone the country's debt payment deadlines and ultimately avoid a hard default by Greece, according to CNBC.

"The risk of a hard default, regardless of whether Greece leaves the euro, is incalculable,” Weinberg stated in a research note, CNBC reported.

"We expect EU-hardliners to back down rather than pull the plug on Greece’s lifeline, if only because the costs are both lower and knowable if Greece is kept alive."

Many experts fear the entire eurozone could collapse after Greece exits and the debt crisis contagion spreads to Spain, Italy or other countries, a scenario with disastrous implications.

"The euro is seriously at risk," said billionaire investor George Soros in the Italian daily la Republica, saying consequences of its implosion could be disastrous, according to CNBC.

As soon as one country shows it can leave the euro, "all sorts of horrible things follow," writes BBC business editor Robert Peston. Businesses will be afraid to leave their euros in banks in countries that might leave the euro.

The European Central Bank and national central banks will have to do more emergency lending to banks.

"The most likely outcome," Peston writes," is that the banking system of the eurozone would become significantly more nationalized, kept alive on the drip of exceptional central bank credit. This is neither healthy or sustainable."

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Monday, 14 May 2012 11:35 AM
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