By Ross Finley
Greece leaving the euro zone has tipped over to become the base case for many international bank economists after Sunday’s overwhelming ‘No’ vote against further austerity imposed by creditors.
A Reuters poll of more than 70 economists published a week ago, just before Greece defaulted on a 1.6 billion euro payment to the International Monetary Fund, placed the median probability of Greece leaving the eurozone at 45 per cent.
Since then, BNP Paribas, J.P. Morgan, RBS, Barclays and Societe Generale, among others, have revised their forecasts for Greece to remain in the eurozone and are now expecting it to leave. Other banks, like Investec, have flagged it as a serious risk that may soon become the most likely outcome.
While few put an exact figure on the probability, that suggests the consensus has now risen above 50 percent, at least among large international bond dealers.
“We argue that EMU (European Monetary Union) exit now is the most likely scenario,” wrote economists at Barclays in a note, even before the final referendum results were in.
“Agreeing on a programme with the current Greek government will be extremely difficult for EU leaders, given the Greek rejection of the last deal offered and will be a difficult sell at home, especially at the Bundestag or in Spain ahead of the general elections.”
There was a more muted response to Sunday’s vote from financial markets while some other economists were also more sanguine.
“An easier route towards a resolution has been ruled out and therefore the risk of a Grexit has risen,” wrote Investec chief economist Philip Shaw, who a week ago put the probability at 35 per cent.
“This is probably not quite our baseline case yet, but it might well be should the signs of a political agreement not become convincing over the next two days.”
The European Central Bank was holding a conference call on Monday to discuss its emergency liquidity for Greek banks. German Chancellor Angela Merkel and French President Francois Hollande were due to meet in Paris later before an emergency summit of euro zone leaders on Tuesday.
But several bank economists were confident enough that Greece will leave the euro to forecast it before any of those political discussions took place.
“It seems more likely than not that Greece will leave the euro at this point – 60 per cent chance,” wrote Nick Kounis, economist at ABN Amro, who gave just a 30 percent probability in the Reuters poll published last week.
“The prospects a deal with creditors have dimmed, and in the meantime the Greek economy will suffer even more severe economic and financial pain,” Kounis wrote.
Erik Nielsen, group chief economist at UniCredit, was even more forceful.
“My bottom line is that the outcome of the Greek referendum has significantly increased the risk of Greece leaving the euro zone, which is now by far the most likely outcome. The process may start within days or weeks, but it won’t be a smooth ride into a new currency. It’ll be chaos with political ramifications.”