EUR: Greek Eurozone exit could cause 'contagion', there are contingency plans already - analyst

Thursday, 17 May 2012 15:04
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Greece has been left in political limbo by the main parties' failure to form a governing coalition.

The ongoing uncertainty has raised concerns that the country may soon leave the Eurozone.

Talks on forming a government have stalled over anti-austerity parties' refusal to accept further budget cuts needed to secure an EU bailout.

Economic analyst Nick Skrekas says Greeks are failing to come to terms with the realities their country faces.

"There is a bit of cognitive dissonance here in the sense that if you ask most Greeks about the bailout cash, they are very happy to take it. If you ask them whether they would rather be in the euro, well, 80% will say 'yes'. If you ask them about the austerity, of course they say 'no'.

I think that there are already contingency plans beginning in the Eurozone for a Greek exit. Of course, this isn’t as easy that some might have you know, because there would be tremendous contagion to the other periphery countries, so it would really shake up the Eurozone completely. And also, the cost of Greece exiting the euro and being bankrupt is more than about 300 billion. Because it’s not just what the government owes, it’s also what the Greek banks owe, and what the Greek Central Bank owes the ECB. There are no easy options here. I think Europe will give us enough time to get our act together, should we wish to.

I think it would be a very harsh message. You have to understand that in Europe at the moment there is a bit of dichotomy. They don’t want to give in to Greece completely, because then they will have everybody else lining up as well. But on the other hand, they don’t want to send the message that we will cut members of Eurozone loose and that the Eurozone could dissolve and shrink overnight. We already see today after the announcement of the repeat Greek elections that yields and borrowing costs for the whole periphery have gone through the roof, and for some at unsustainable levels. So there are direct risks there."

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