“Grexit”

Financial Times
February 7, 2012

Grexit being, of course, a Greek exit from the eurozone. (Also, an app for archiving and sharing Gmail threads. Bummer for them.)

The term comes from Willem Buiter and Ebrahim Rahbari at Citi, who are now leaning towards the “let them leave” argument:

First, we raise our estimate of the likelihood of Greek exit from the eurozone (or ‘Grexit’) to 50% over the next 18 months from earlier estimates of ours which put it at 25-30%. Second, we argue that the implications of Grexit for the rest of the EA and the world would be negative, but moderate, as exit fear contagion would likely be contained by policy action, notably from the ECB.

Citi had warned of ‘very high’ costs from a Greek exit only in September 2011. Notwithstanding support from the ECB – Buiter and Rahbari also reckon that European banks have now mostly insulated themselves from Greece and have offloaded exposure in the last 18 months. Some of the Citi comment on Greece’s economic fate post-exit is pretty chilling in its clinical tone: “For most other countries in the euro area, a Greek import collapse would seem to be a manageable inconvenience,” etc.

Buiter and Rahbari even argue that leaving the euro — which, let’s remember, isn’t provided for in any treaty and would have to be disorderly by definition – would be a “cathartic experience” for reforming the Greek state. We’re not too sure many Greeks would see it the same way.

More