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.
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."
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 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.
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.