Greek impasse raise fears of 'Grexit'

by Katie Allen

Guardian
February 7, 2012

Word of the day is Grexit. It has been coined by Willem Buiter, chief economist at Citigroup, which now sees a greater chance of a Grexit – or Greek exit from the eurozone.

Against the backdrop of still to be concluded Greek talks over the latest bailout for the debt-choked country, Citigroup has raised its estimate of such an unravelling of Greece's situation to one in two.

It now sees a 50% chance of a Grexit over the next 18 months, up from its previous estimate of just 25-30%.

Explaining the move, former Bank of England policymaker Buiter and his Citigroup colleague Ebrahim Rahbari comment:

"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."

On the upside they argue that the costs of Grexit to the rest of the euro area would be "moderate", as they "expect post-Grexit fear contagion would be contained by policy action, if needed."

They added: "In September, we viewed the likelihood and scale of exit fear contagion as much higher and the willingness of the euro area authorities to respond as lower."

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