Citigroup: Risk of Greek Exit From Euro Has Risen to 50%

by Matina Stevis

Wall Street Journal
February 6, 2012

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.

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