Jana Randow and Gabi Thesing, ©2012 Bloomberg NewsTuesday, May 22, 2012
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 Zealand, based
on a synthesis of euro-exit scenarios from 21 economists, analysts and
academics.
Over the two days, leaders would have to calm civil
unrest while managing a potential sovereign default, planning a new
currency, recapitalizing the banks, stemming the outflow of capital and
seeking a way to pay bills once 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 because it couldn't manage its public
finances.
"Leaving is difficult and messy, so anyone who thinks
it's easy is just wrong," said Lorenzo Bini Smaghi, who left the
European Central Bank's executive board last year, in a phone interview.
"The Greeks must be rational and protect themselves from rash decisions
that they will live to regret. Leaving the euro is not the answer to
their problems." He declined to say whether he thought 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 8 that Greece couldn't renegotiate its
bailout terms if it wanted to stay in the euro. President Mario Draghi
responded May 16 that the ECB's "strong preference" was for Greece to
stay in the euro.
The remarks followed elections May 6 that propelled
the Syriza party, which calls for reneging on the bailout accords, into
second place. Syriza may build on that support in June 17 elections,
according to three opinion polls, complicating Greece's efforts to avoid
running out of cash by early July.
Syriza's opposition to the terms of Greece's
financial-aid program doesn't mean the country would have to abandon the
euro should the party forms a government after the elections, party
leader Alexis Tsipras said May 20. The Pasok Socialist party and the New
Democracy party, which have taken turns running Greece over the past
four decades, favor meeting the bailout terms.
First in Century
"This is the first time since the beginning of the
last century that it's not about the left or right winning, it's about
pro-bailout or anti-bailout," said Aristotle Kallis, professor of modern
and contemporary history at Lancaster University in the U.K.
European leaders meeting today in Brussels are seeking
to keep Greece within the 17-nation single currency as new French
President Francois Hollande and German Chancellor Angela Merkel disagree
on how much austerity is needed to stem the crisis.
In the end Greece will stick to its commitments, said
Bill O'Neill, chief investment officer for Europe, Middle East and
Africa at Merrill Lynch Wealth Management in London.
"We don't think Greece will walk away, even if the
result after the June 17 election is difficult for the pro-bailout
parties," he said in a May 21 interview on Bloomberg Television's "The
Pulse" with Maryam Nemazee. "We don't think they will deliberately step
away from the bailout. There will be a process of negotiation in a
worst-case scenario, but we don't believe a Greek exit is going to
happen."
18-Month Forecast
Still, Citigroup Inc. economists said in a May 7
research note that Greece's election results increase the risk of the
country leaving the euro within the next year to 18 months to as high as
75 percent. More than 50 percent of investors 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 spending cuts and economic modernization, said Marco
Annunziata, a former International Monetary Fund executive who now works
as chief economist at General Electric Co. in San Francisco.
"Time is of the essence," he said in a telephone
interview. "Events may unfold faster than we expect. The key risk is
that anti-reform statements by a new government might trigger a run on
deposits."
Such a run could induce the ECB as early as the
following Friday to cut off further funding to Greek banks at a time
when the government lacks money to recapitalize them, said Carsten
Brzeski, a former European Commission economist who now works for ING
Group in Brussels.
Stocks Drop
Stocks fell in Asia amid concern at the dangers posed
by any Greek departure from the euro, with the MSCI Asia Pacific Index
losing 1.2 percent as of 11:44 a.m. in Tokyo. The euro was little
changed at $1.2683. Former Greek Prime Minister Lucas Papademos said an
exit for his nation would be "catastrophic" and have implications for
the euro region, the Wall Street Journal reported, citing an interview.
"Although such a scenario is unlikely to materialize
and it is not desirable either for Greece or for other countries, it
cannot be excluded that preparations are being made to contain the
potential consequences of a Greek euro exit," the Wall Street Journal
quoted Papademos as saying. CNBC television separately quoted Papademos
as saying there aren't preparations underway in Greece for a euro exit.
With further bailout payments suspended by EU leaders
to await the government's direction and the country's coffers expected
to run out of cash within two months, Greece's options would begin to
narrow.
Bank Runs
A new government may have to respond with capital
controls to prevent citizens, faced with potential devaluation of their
savings, from withdrawing their money from banks, said Dawn Holland, a
senior research fellow at the National Institute of Economic and Social
Research in London.
"This has to happen very quickly, as capital flight
has already happened," she said. "This is when things could get ugly
too, as on an individual basis you cannot blame people for wanting to
hold on to their euros."
Greek bank deposits dropped about 23 billion euros
($29 billion) in the nine months through March, or about 13 percent, to
about 160 billion euros, central bank data show. President Karolos
Papoulias said on May 14 that about 700 million euros had been
withdrawn, without specifying over how many days.
Should the decision to discard the euro be taken,
Greek officials would have to request a meeting of euro-area finance
ministers and leaders to set the exit conditions.
New York Close
The departure preparations could come as soon as the
New York bond market's close for the weekend at about 5 p.m. on a
Friday. That's 11 p.m. in Frankfurt and Brussels, home to most European
institutions, and midnight in Athens.
"We have to assume that some plans have already been
made," said Gabriel Stein, a director at Lombard Street Research in
London. "If not, people at the IMF and the ECB are failing in their
duties to shareholders and taxpayers."
European Union Trade Commissioner Karel de Gucht told
De Standaard in an interview published May 18 that European officials
are already working on contingency plans.
An ECB spokeswoman who declined to be named reiterated
the central bank's policy of not commenting on emergency plans or
possible scenarios.
Central bankers in Europe have already started
discussing the possibility of a Greek exit from the euro area and how to
handle its fallout, Swedish Riksbank Deputy Governor Per Jansson told
Bloomberg News in an interview May 11.
