Greek default without euro exit conceivable for economists
A Greek default doesn’t mean the country has to leave the euro area, economists say.
The chances of Greece missing some of its debt payments in the coming weeks are 40 percent, while the probability of an exit from the 19-nation currency bloc stands at 30 percent, according to median estimates in a Bloomberg survey of 29 economists. Almost four in five respondents said a default won’t trigger an exit.
“Although the likelihood of default and Grexit has certainly risen considerably over the past few weeks in both cases, it is wrong to think that one necessarily will follow the other,” said Danae Kyriakopoulou, senior economist at the Center for Economics and Business Research in London. “If liquidity can be maintained even in the case of default then this means that Grexit will not follow default.”
Time for Greece is running out as Prime Minister Alexis Tsipras remains at loggerheads with his country’s creditors over reforms needed to unlock funds from the country’s 240 billion- euro ($259 billion) bailout. A meeting of euro-area finance ministers in Riga on Friday, targeted as a deadline to wrap up talks only two weeks ago, is now likely to pass without an agreement even as payment deadlines loom.
‘Little Bit Tired’
Arriving for the talks, Italian Finance Minister Pier Carlo Padoan said “we don’t expect any definitive results at this meeting.” His Slovak counterpart Peter Kazimir told reporters he feels a “little bit tired” about Greece discussions because “we talk, talk and the substance is missing.”
Martin Sorrell, chief executive officer of WPP Plc, who visited Brussels last week, said euro-area officials seem to have come to terms with a departure of Greece from the single currency. “The odds have moved closer to them going,” he said in a Bloomberg Television interview. It’s “not a given, but more than 50-50.”
The yield on Greece’s 3.375 percent securities maturing July 2017 fell 6 basis points from yesterday to 24.8 percent. The yield reached a high for the year on Apr. 21 of 29.6 percent. The Greek ASE stock index is down 8.4 percent since the start of the year.
The European Central Bank increased the pool of emergency liquidity available for Greek banks by about 1.5 billion euros to 75.5 billion euros on Wednesday after the standoff aggravated a deposit flight.
Sense of Urgency
Economists are torn about whether the government will introduce capital controls, with chances ranging from 20 percent to 100 percent, according to the survey. The median probability is 50 percent.
Since striking a deal to extend its bailout program in February, Tsipras’s anti-austerity coalition government has repeatedly expressed confidence that a deal to free bailout disbursements was imminent, only to be rebuffed by euro-area officials seeking concrete steps.
“It’s very important that Greece is accelerating work on the reform list and also starts working on the implementation of program conditionality,” Jeroen Dijsselbloem, who presides over meetings of euro-area finance ministers, said before Friday’s gathering. “There’s a great sense of urgency for all of us to get a deal, but work has to be done before the Eurogroup can take a decision.”
Economists in the survey see the chances of Greece missing some of its debt repayments in the next four to six weeks between 10 percent and 100 percent. The probability range is the same for an exit of the country from the currency region.
Meeting Deadlines
Tsipras issued a decree on Monday forcing local governments to transfer cash reserves currently held in commercial banks to the central bank. The money will be able to be used to meet obligations including the repayment of 770 million euros owed to the International Monetary Fund on May 12. The government also has to pay about 1.5 billion euros in wages and pensions at the end of the month.
Greece and its creditors haven’t discussed having the country miss a payment to the IMF or default, a senior Greek government official said on Thursday.
The euro area now views the end of June to be Greece’s main deadline to unlock aid payments as hopes of a deal before April 30 fade, a European Union official said on Tuesday. That’s when the bailout extension expires and Greece needs to negotiate a successor program before about 7 billion euros of Greek bonds held by the ECB mature in the summer.
If Greece stays in the euro and agrees on a new program, such a package would need to be worth 40 billion euros, according to the survey. Answers ranged from 26 billion euros to 100 euros.
“It’s a little bit misleading to characterize the choice or the outlook for Greece right now in binary terms between a deal and Grexit,” Ebrahim Rahbari, an economist at Citigroup Global Markets Inc. in New York, said in a Bloomberg TV interview. “I don’t think that there’s any chance that you’ll have a resolution one way or the other in the next couple of days, or even weeks.”
[Bloomberg]
