Citigroup Inc. economist Ebrahim Rahbari is again trying his hand at etymology.
In February 2012, he coined the term “Grexit” to describe the risk of Greece leaving the euro area. At the time, he and his fellow economists at Citigroup put the probability at 50 percent within the next 18 months and later raised it to 90 percent by 2014.
It’s 2015 and Greece is still in the eurozone.
Yet talk of Grexit is back as Athens squares off with its creditors and its virtual cash drawer empties by the day. The use of the word in Bloomberg News stories spiked this year to the most since its creation.
As the euro proved more durable than he predicted a few years back, Rahbari has come up with a new shorthand. While Grexit is not inconceivable, Citigroup describes the imminent outlook as what they call “Grimbo” — “for those grey scenarios where Greece isn’t going to get money from the Europeans and there’s no resolution for a durable horizon,” Rhabari told Bloomberg Television’s Erik Schatzker and Stephanie Ruhle on Wednesday.
He sees two such scenarios.
In the first, a new aid deal is set but only after the imposition of capital controls and a possible default. This could happen if bailout negotiations fail to produce a result until, say, the European Central Bank limits the flow of emergency loans to Greek banks.
“The shock could provide an extra push on both sides to conclude the negotiations,” Citigroup economists told clients in a report this week.
Grimbo could also happen if there’s no new aid, the government defaults, capital controls are introduced and IOUs are issued yet Greece still hangs on to the euro.
“Over time, the stressed liquidity situation, and notably deposit-withdrawal restrictions for banks, would significantly increase pressure on the Greek government, making fresh elections likely,” said Citigroup. “Those could produce a mandate for a new bailout agreement with the euro zone or pave the way for an eventual Grexit, but this could still leave Greece in limbo for an extended period of time.”
The message to investors is to prepare for a long ride.
Grexit “may still not be the most likely outcome in the near term, but would more likely be the result of a drawn-out process,” said Rahbari and colleagues.