Greece will leave the euro zone next year and the country's new currency will "immediately fall by 60 percent," according to Citi chief economist Willem Buiter.
Greek officials have repeatedly stressed that the country will be running out of cash by the end of June, after which it would be unable to make debt payments and pay civil wages and pensions. An election is scheduled for June 17 after inconclusive results of the May 6 polls meant a government could not be formed.
The Troika of international lenders — the European Union, the European Central Bank, and the International Monetary Fund — are waiting to see what government will result from the elections next month before disbursing more aid.
"The elections (on June 17th) will not produce a viable government that can follow the troika plan, leading to a stalemate between the Greek government and official creditors, and to the suspension of EFSF-IMF funding,” Buiter wrote in Citi's latest Global Economic Outlook.
However, analysts caution that a default wouldn’t automatically lead to an expulsion of Greece from the euro zone.
As UBS writes in a recent report: "There is plenty of precedent for defaulting inside a monetary union, so [a Greek] exit should not be assumed to be automatic."
Limited Cash Reserves
But Citi explains a Greek exit from the euro zone is closely linked with its limited cash reserves, which may be depleted well before the year end: “A Greek EMU exit could be triggered by the government’s need to print money to cover its spending.”
Citi adds that Greece's new currency will immediately fall 60 percent versus the euro and “remain depreciated by 50 to 60 percent for the next five years.”
Based on this scenario, the bank believed that Greece’s real gross domestic product will shrink by about 10 percent in 2013. However, it could rebound by 4 percent to 5 percent in 2015-2016, as gains in cost competitiveness revive exports, especially tourism, Citi wrote.
Addressing Spain’s banking sector troubles, Citi expects “some kind of troika program for Spain to be agreed this year or in early 2013." Its main goal will be to fund a recapitalization of the banks, though there is a chance it could be used for the funding of the fiscal deficit as well, according to Citi.
On Thursday, Spain’s Prime Minister Mariano Rajoy reiterated the country had no “interest and no need” for a recapitalization of its banking sector through the European rescue fund.
Hours later the Spanish economy minister Luis de Guindos confirmed that Bankia[ BNKXF 2.30 +0.00 (+0.00%) ], the country’s fourth-biggest lender, will be fully nationalized, with a 9 billion euros ($11 billion) capital injection through Spain's state-backed bailout fund.
Posted without comment, because really - what can ya say? :/
Post from TimothyC deleted by user request - SCRawl
Phantasee wrote:I have heard the figure 8.2% as how much Germany's GDP will contract upon Greece exiting. Everybody is fucked.
Where did you hear that one?
I sincerely doubt this number, since even in 2009, when the world economy was having a major breakdown, German GDP only contracted by ~6%. The 8.2% figure for throwing out Greece is obviously way overblown.
I'm sorry, you're correct. It was from this Economist piece, and the 8.2% figure is if the Euro collapsed altogether.
Second last paragraph:
"If neither the rescue funds nor the ECB can do enough, a wider break-up might ensue, with huge costs all around. Mr Cliffe says that a disintegration of the euro would be catastrophic even for core Europe, with first-year output losses of 8.9% for the euro area (as was). This time Germany would not be spared, incurring a GDP loss of 8.2% as its exporters contended with the strength of a reborn D-mark. Across the former euro area, there would be a wave of bankruptcies as firms suddenly found themselves either owed money in a depreciating currency or owing money in an appreciating one."
In an interview in The Daily Telegraph, Theresa May says “work is ongoing” to restrict European immigration in the event of a financial collapse.
People from throughout the EU, with the exception of new member countries such as Romania and Bulgaria, are able to work anywhere in the single market.
However, there are growing concerns that if Greece was forced to leave the euro, it would effectively go bankrupt and millions could lose their jobs and consider looking for work abroad.
The crisis could spread quickly to other vulnerable countries such as Spain, Ireland and Portugal, although Britain is regarded as a safe haven because it is outside the single currency.
Details of the contingency plan emerged as the euro crisis deepened further yesterday.
Catalonia was forced to turn to the Spanish government for a bail-out and speculation mounted that Bankia, the troubled Spanish bank, would need £15 billion in state support. European markets fell again as the euro dropped in value against other major currencies.
The Home Secretary says that the Government is already “looking at the trends” to determine whether immigration from beleaguered European countries is increasing. While there is no evidence of increased migration at present, she adds that it is “difficult to say how it is going to develop in coming weeks”.
On the subject of whether emergency immigration controls are under consideration, Mrs May says: “It is right that we do some contingency planning on this [and] that is work that is ongoing.”
The introduction of immigration controls within the EU would undermine a key part of the single market. However, it is allowed in “exceptional” circumstances under European law.
Controls are most likely to include restrictions on people seeking to work in Britain, who could be made to apply for visas.
Several European governments introduced temporary immigration controls when countries such as Poland and the Czech Republic joined the EU, to stop an influx of workers. France also threatened to reintroduce passport controls at the Italian border following an influx of Libyan and Tunisian refugees during the Arab Spring.
David Cameron has already said that Britain has made contingency plans to deal with the break-up of the single currency.
They involve preparations to evacuate Britons from Greece if civil disobedience spirals out of control, and for banks to take steps to protect
"This business will get out of control. It will get out of control and we’ll be lucky to live through it.” -Tom Clancy
Can we actually do that without major repurcussions? I'm pretty sure it's some kind of treaty violation.
There are hardly any excesses of the most crazed psychopath that cannot easily be duplicated by a normal kindly family man who just comes in to work every day and has a job to do.
-- (Terry Pratchett, Small Gods)
Replace "ginger" with "n*gger," and suddenly it become a lot less funny, doesn't it?
-- fgalkin
Col. Crackpot wrote:if it really gets to that point and the Euro is actually breaking up there will be far greater things to worry about than treaty violations.
True, but it sets a worrying precedent; what other treaty obligations will our neighbours start ignoring if they see us getting away with ignoring this one?
That said, I suspect this idea will get quietly buried as soon as the Border Force presents an estimate of how much it's going to cost to implement.
There are hardly any excesses of the most crazed psychopath that cannot easily be duplicated by a normal kindly family man who just comes in to work every day and has a job to do.
-- (Terry Pratchett, Small Gods)
Replace "ginger" with "n*gger," and suddenly it become a lot less funny, doesn't it?
-- fgalkin
If the UK reputes the Schengen Agreement I could be in a bit of bother as I am working in the UK under my Greek passport for the past 5 years.
Η ζωή, η ζωή εδω τελειώνει!
"Science is one cold-hearted bitch with a 14" strap-on" - Masuka 'Dexter'
"Angela is not the woman you think she is Gabriel, she's done terrible things"
"So have I, and I'm going to do them all to you." - Sylar to Arthur 'Heroes'
Crown wrote:If the UK reputes the Schengen Agreement I could be in a bit of bother as I am working in the UK under my Greek passport for the past 5 years.
If the law is anything like around here, after 5 years you have the right to permanent residence anyway. I'd say you can even apply for a British passport, if you were really worried.
Crown wrote:If the UK reputes the Schengen Agreement I could be in a bit of bother as I am working in the UK under my Greek passport for the past 5 years.
If the law is anything like around here, after 5 years you have the right to permanent residence anyway. I'd say you can even apply for a British passport, if you were really worried.
And become English?!?! My word man, why do you hate me so much?
Η ζωή, η ζωή εδω τελειώνει!
"Science is one cold-hearted bitch with a 14" strap-on" - Masuka 'Dexter'
"Angela is not the woman you think she is Gabriel, she's done terrible things"
"So have I, and I'm going to do them all to you." - Sylar to Arthur 'Heroes'
Crown wrote:If the UK reputes the Schengen Agreement I could be in a bit of bother as I am working in the UK under my Greek passport for the past 5 years.
The UK isn't in the Schengen Agreement, but that's not where the residency right comes from. It's more likely they would only stop new entrants, if this indeed is not just another "I didn't understand it's against EU law" comment from a politician.
Crown wrote:If the UK reputes the Schengen Agreement I could be in a bit of bother as I am working in the UK under my Greek passport for the past 5 years.
If the law is anything like around here, after 5 years you have the right to permanent residence anyway. I'd say you can even apply for a British passport, if you were really worried.
And become English?!?! My word man, why do you hate me so much?
Dude, you'd have three passports then. Imagine the fun you can have at the border control. Besides, no worries. It's not like I started to like sauerkraut the day I got the German passport or that I forgot which team to root for on the 9th of June
Crown wrote:If the UK reputes the Schengen Agreement I could be in a bit of bother as I am working in the UK under my Greek passport for the past 5 years.
The Schengen Agreement is the lack of passport control between countries. As has been pointed out the UK is not a member of that. Your rights in the UK come from the free movement of people provisions in EU law. These essentially give anyone the right to work in any member state (with some temporary exceptions for the newest members). Basically EU members can't do anything to prevent people who can support themselves from moving round unless there are exceptional circumstances. It's a pretty fundamental tenet of EU law, so violating it on a large scale would not be good.
