Monday, May 7, 2012

Odds of Greece Leaving the Euro Just Went Up

Greece is unlikely to form a government that will meet austerity demands under the last EU bailout agreement.

“Without a functioning government, it seems highly unlikely that Greece would be in a position to present the Troika with plans for additional budget savings worth 7 percent of GDP by the end of June,” said Guillaume Menuet, an economist at Citi, in a research report on Monday.

And time is running out:

 “The Troika is likely to delay the disbursement of the next tranche of the program. Note that for the second quarter of 2012, disbursements of 31.3 billion euros ($40.7 billion) from the bailout program are scheduled,” he said. “If Greece does not make progress, in a second step, the Troika is likely to stop the program. If that happens, the Greek sovereign and its banking sector would run out of funding.”
As a result, Greece would be forced to leave the euro area, according to Menuet, who said the chances of such an outcome are now rising fast.
 More here.

 While leaving the Euro would be good for Greece, just as it was for Iceland and would likely be bullish for the Euro, it would also likely lead to a new banking crisis in Europe as it would end any question as to whether Greece has truly defaulted.

You may recall previously that Greece first did not default and then did.....sort of. The 70% "haircuts" were offered in exchanged for more Troika bailout money from the EU.

Leaving the Euro will end any and all doubt, but will almost certainly have global implications to both European and US banks that hold their debt.

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