A Greek Exit from the Euro Area: A Disaster for Greece, a Crisis for the World

by Willem Buiter

CitiGroup
Global Economics View
September 13, 2011

• A Greek exit from the Euro Area has become more likely recently.
• Greek EA exit would be hugely costly for Greece and yield only small benefits.
• Greek EA exit would also have large negative effects on the rest of the EA through direct and indirect channels.
• The most important indirect effects would be due to the fact that a taboo was broken that countries do not leave the EA, further increasing pressures on the remaining weak EA countries.
• Greek EA exit would most likely be preceded by a halt in Troika (IMF, EU/EA, ECB) funding for the Greek sovereign and banks and would be closely preceded or followed by Greek sovereign default.
• Greek sovereign default is consistent with Greece remaining in the EA.
• Deep restructuring involving large NPV losses for both private and official creditors other than possibly the IMF is a given in the case of Greece – a Greek exit from the euro area (EA) is not. For the sake of economic stability and growth in the EA, the wider EU and globally, we hope that this message is taken to heart by the European authorities.

Read the Report (PDF)