Greece won’t exit Eurozone, economic experts say

Abu Dhabi Irrespective of the outcome of elections in Greece due to be held June 17, the country will continue to remain in the Eurozone as other member nations are left with no choice to escape cataclysm other than to relax the terms of a financial aid that would enable the debt-laden country stay afloat for the time being and buy Europe more time to fix its mounting debt woes, economic experts told Gulf News on Friday.

They warned a sovereign debt default by Greece and its exit from the Euro would be catastrophic. Greece’s exit would cause a run on the sovereign bonds and bank deposits of other heavily indebted countries in Europe such as Spain, Italy and France, an event that could well drive the continent into a prolonged recession. The country to be hurt the most from ‘Grexit’ would be Germany, and experts feel that despite some tough talking in recent times about Greece’s apparent apathy towards fiscal rectitude, Germany, acting in its own best interests would soon step in firmly and decisively to persuade other Euro zone members to hand over the promised cash to Greece.

Stringent fiscal reforms

In February, Greece won a second bailout from European governments with finance ministers awarding €130 billion (Dh603 billion) in aid, subject to it carrying out some stringent fiscal reforms to put its finances back in order. Until now, Greece’s intentions to comply with the terms of a second bailout are uncertain following mounting pressure from the public who see it as an assault on Greece’s sovereignty.

“Greece will not decide its exit from the Euro. It will the heads of other 16 governments in the Eurozone who will decide whether the European Central Bank would cut euro supplies to Greece’s central bank and its banking system, should Greece not comply with its bailout terms. However, my reading is that the other 16 countries in the Euro area will vote in favour of a Greek bailout because of fear of contagion from Greece to others,” said BNP Paribas’ Global Chief Economist Philippe d’Arvisenet by telephone from Paris.

“These countries are going to allow Greece more time to adjust its fiscal situation,” d’Arvisenet added.

Cost of Greek default

“It is a valid point that the cost of a Greek default or Euro exit would be significant to all parties involved and thus all parties have a vested interest to reach an agreement. The path forward will depend on political decisions. Moments of crisis tend to provoke policy responses and there is room for decisive action to be taken provided the political will exists,” said Giyas Gokkent, Group Chief Economist at National Bank of Abu Dhabi.

He said the European Union periphery is uncompetitive and this is the root problem.

Anastasios Dalgiannakis, Head of Trading at Dubai-based Mubasher Financial Services said as far as Greece is concerned, the Greek population wants to retain the euro and it is important for the European economy that Greece remains solvent as the repercussions of a disorderly default would be severe.

“The key challenge for the European policy makers post the Greek elections will be to work closely with whichever Greek government is elected in a spirit of solidarity and find ways to reformulate the memorandum so that it both pushes for reform, achieves much needed austerity but is also accomodative to especially sensitive parts of the population, like the Greek youth which is suffering from explosive unemployment, undermining both the present and the future of the economy,” said Dalgiannakis.