The 46-Hour Window: War-Gaming Greek Euro Exit Looms

Greece may possibly have only a 46-hour window of opportunity should it want to plot a route out of the euro.

That’s how significantly time the country’s leaders would almost certainly have to enact any departure from the single currency although global markets are largely closed, from the finish of trading in New York on a Friday to Monday’s market place opening in Wellington, New Zealand, based on a synthesis of euro-exit situations from 21 economists, analysts and academics.

Over the two days, leaders would have to calm civil unrest even though managing a potential sovereign default, preparing a new currency, recapitalizing the banking institutions, stemming the outflow of capital and searching for a way to spend expenses as soon as the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 since it couldn’t manage its public finances.

“Leaving is tough and messy, so any individual who thinks it’s effortless is just wrong,” explained Lorenzo Bini Smaghi, who left the European Central Bank’s executive board last year, in a cellphone interview. “The Greeks must be rational and protect themselves from rash choices that they will dwell to regret. Leaving the euro is not the answer to their troubles.” He declined to say regardless of whether he believed an exit would occur.

No Renegotiation

The specter of Greece leaving the euro was evoked when ECB executive board member Joerg Asmussen told Germany’s Handelsblatt in an interview published May possibly 8 that Greece couldn’t renegotiate its bailout terms if it wished to keep in the euro. President Mario Draghi responded May 16 that the ECB’s “strong preference” was for Greece to keep in the euro.

The remarks followed elections Could 6 that propelled the Syriza party, which calls for reneging on the bailout accords, into 2nd spot. Syriza may develop on that assistance in June 17 elections, according to three view polls, complicating Greece’s efforts to avoid operating out of money by early July.

Syriza’s opposition to the terms of Greece’s monetary-aid program doesn’t imply the country would have to abandon the euro should the party type a government after the elections, party leader Alexis Tsipras stated May 20. The Pasok Socialist party and the New Democracy party, which have taken turns working Greece over the past four decades, favor meeting the bailout terms.

“This is the first time since the beginning of the last century that it is not about the left or right winning, it’s about pro-bailout or anti-bailout,” mentioned Aristotle Kallis, professor of modern and modern history at Lancaster University in the U.K.

European leaders meeting today in Brussels are searching for to keep Greece inside the 17-nation single currency as new French President Francois Hollande and German Chancellor Angela Merkel disagree on how much austerity is essential to stem the crisis.

In the end Greece will stick to its commitments, mentioned Bill O’Neill, chief investment officer for Europe, Middle East and Africa at Merrill Lynch Wealth Management in London.

“We do not think Greece will stroll away, even if the outcome after the June 17 election is challenging for the pro-bailout parties,” he said in a Could 21 interview on Bloomberg Television’s “The Pulse” with Maryam Nemazee. “We really don’t think they will deliberately phase away from the bailout. There will be a process of negotiation in a worst-case scenario, but we do not believe a Greek exit is going to take place.”

18-Month Forecast

Still, Citigroup Inc. economists stated in a Might 7 research note that Greece’s election final results improve the threat of the country leaving the euro inside the following year to 18 months to as large as 75 %. A lot more than 50 percent of traders surveyed by Bloomberg News predict an exit of a euro member this year.

A euro exit could be in the cards almost as soon as the new government is formed should new leaders decline to adhere to the bailout terms of investing cuts and financial modernization, said Marco Annunziata, a former International Monetary Fund executive who now functions as chief economist at Basic Electrical Co. (GE) in San Francisco.

“Time is of the essence,” he said in a telephone interview. “Events could unfold more rapidly than we assume. The important danger is that anti-reform statements by a new government may well set off a run on deposits.”

Such a run could induce the ECB as early as the following Friday to cut off even more funding to Greek banking institutions at a time when the government lacks cash to recapitalize them, mentioned Carsten Brzeski, a former European Commission economist who now works for ING Group in Brussels.

Stocks Drop

With even more bailout payments suspended by EU leaders to await the government’s route and the country’s coffers anticipated to run out of cash inside two months, Greece’s possibilities would commence to narrow.

Sources and more information:

• Euro exit scenario gives Greece 46 hours to manage process

Greece may have only a 46-hour window of opportunity should it need to plot a route out of the euro. That’s how much time the country’s leaders would probably have to enact any departure from the single currency while global markets are largely closed, from the end of trading in New York on a Friday to Monday’s market opening in Wellington, New…

• John Ward – Euroblown : Merkel “Fears Greek Distractions Will Torpedo Currency Union” – Summint Signposts : Hollande’s Eurobond, And Greece’s Banks – 23 May 2012

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