Kamis, 24 Mei 2012

Citigroup predicts 'Greece will leave eurozone on New Year's Day'

Citigroup predicts 'Greece will leave eurozone on New Year's Day'

By James Salmon and This Is Money Reporter

PUBLISHED: 01:33 EST, 24 May 2012 | UPDATED: 08:47 EST, 24 May 2012


Greece will drop out of the eurozone on 1 January 2013 and reinstate the drachma: that was the prediction today from banking giant Citigroup.

The world's second-largest currency trading bank said Greece's new currency would fall immediately by 60 per cent and unleash a massive, yet manageable, wave of contagion across Europe.

In a note to clients, it said the likelihood of Greece leaving the euro in the next 12 to 24 months was now between 50 and 75 per cent - and assumed there would be a 'Grexit' at the start of next year.

Rebuff: Angela Merkel urged the eurozone to stick with austerity measures as markets plunged

Rebuff: Angela Merkel urged the eurozone to stick with austerity measures as markets plunged

Citigroup based its case on the belief that Greece would fail to form a government capable of implementing austerity measures after its next set of elections on June 17.

This would 'accentuate' the stalemate between the nation and its creditors.
Chief economist Michael Saunders said: 'We assume Grexit occurs on January 1, 2013, with Greece staying in the EU and receiving external loan support [to mitigate risks of social unrest and collapse of civil society].

'We expect that Grexit will be followed by a series of policy responses aiming to prevent a domino-style collapse of the banking system and escalating economic disruption.'

Bitter divisions have emerged among European leaders battling the eurozone crisis as Greece teeters on the brink of crashing out of the single currency altogether.

Amid the outbreak of hostilities, Prime Minister David Cameron had to ward off a fresh French bid to force through a controversial financial transactions tax.

Markets plunged across Europe yesterday as the leaders of 27 EU countries met in Brussels to discuss how to stimulate growth in Europe and the Greek crisis.

And as politicans aired sharp differences, one market analyst warned there now appeared to be 'paralysis at the heart of Europe’s policy making machinery'.

A push by France’s new socialist president Francois Hollande for the creation of pan-European bonds to enable struggling nations such as S pain and Italy to borrow more cheaply has been dismissed out of hand by German chancellor Angela Merkel.

Merkel said the idea, which would effectively see Germany underwrite the eurozone’s vast debts, was illegal under EU law and was ‘not a contribution to stimulating growth’.

France also insisted on pushing ahead with proposals for a tax on financial transactions, which experts warn will hit the City of London. But Cameron described the proposal as a ‘bad idea’ and pledged to ‘fight it all the way’.

New Year's Grexit: Citigroup has made a very specific for Greece's exit from the eurozone.

New Year's Grexit: Citigroup has made a very specific for Greece's exit from the eurozone.

Behind closed doors in Brussels, Cameron warned fellow EU leaders that ‘contagion’ from a Greek exit could destabilise the European economy for years.

‘We need a plan to deal with contagion,’ he said.

Meanwhile, Spain's Mariano Rajoy warned his country cannot continue much longer with its current high borrowing rates, which have soared well above the dangerously high 6 per cent level in recent weeks.

Germany’s central bank yesterday issued a stark warning that it is bracing itself for Greece’s exit, sparking a massive sell-off on global financial markets.

The Bunde sbank suggested the fallout from Greece leaving the single currency would be ‘considerable but manageable’.

Some £35.45bn was wiped off the FTSE 100 index of leading shares in the worst day of trading since November 21 last year.

Markets have steadied today, although the mood among investors remains tense due to the political turmoil.

The FTSE 100 was up 9.8 points at 5,276.2 in early trading, while the French CAC 40 and the German DAX saw mild declines. The euro has slid further against the pound this morning to 80p (€1.2495).

Michael Hewson of CMC Markets said: 'While Greece remains a running sore investors will be unwilling to place their faith in EU politicians unless they can come up with a credible plan to deal with the unfolding crisis within Europe.

'While all the uncertainty over a Greece exit remains, the country is likely to remain uninvestable as Greek citizens slowly empty their bank accounts and withhold their taxes o ver uncertainty surrounding the country’s future.

'Last night’s decision by EU leaders to put off any proposed action until next month’s June summit with respect to dealing with the problems afflicting Europe’s banking sector, illustrates the paralysis at the heart of Europe’s policy making machinery, and also the divisions as to what any next steps would be to restore investors fragile confidence.'

Gary Jenkins of Swordfish Research said: 'For once a European summit did not disappoint; they promised nothing and that is exactly what we got.

'There was some confusion regarding whether or not the EU was really working in secret to prepare for a Greek exit and one can only hope they are.'

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Simon, Bradford - agree. New Labour were in the City's pockets, the Lib/Cons seem the same, the BoE seem to represent the City's interests - how unfortunate for this country the economy was allowed to get sucked into that particular votex. When we see pictures of the City buildings now - there's not a sense of pride so much but a sense of disgust. Disgust that they lured the country into unsubstainable debt, disgust that the New Labour Government turned a blind eye and further disgust that this Con/Lib Government seems to be doing nothing to punish them - in fact colluding in rewarding them by reducing the 50p tax and going along with the BoE policies of low interest rates and QE.

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After their billionth summit meeting about what to do with this situation, they finally came up with nothing once again. There is only ONE OPTION which is known to everyone in the EU above the age of 7, let Greece leave. Then when the focus swings to Spain then Portugal, Ireland and Italy and then France, they won't have a need to decide what to do. It will have crumbled. This just proves they would rather pour BILLIONS upon BILLIONS of our money at it and put all countries into a downward spiral of depression, rather than do what needs to be done. Some leaders eh?.

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Cameron and co are bankrolled by the City, the Conservatives have their interests at heart, not ours. Labour and Conservative unfortunately can still rely on enough useful idiots to keep voting for them. A financial transaction tax would not be bad, and help to reduce the damaging gambling behaviour of the financial sector.

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Over here the leading supermarket has yesterday put up signs saying we now accept currency from your own country,make of this what you wish also the increase in beggars outside retail outlets seems to increase daily another sign that the euro is a failed concept IMO.

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Its hard enough to run one country successfully as we know - socialist types like spending other people's money, conservatives don't, lib dems we're not too sure, greens - like green things etc etc. How on earth did they ever think different counties would sit together under one umbrella when they speak different languages, have different cultures, religions, climates, work ethics. Just because you can easily manufacture a new coin doesn't mean you can easily manufacture a new superstate with such totally different elements.

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Cameron is beside himself with obstinance over the EU's attempt to TAX Banking transactions between banks..he is sticking his foot down and says he will fight it with all his heart and soul....THEN, on the other side of the die, banks are attempting to TAX the CUSTOMER by charging fees for Bank Accounts and Cameron is deathly SILENT. It is OBVIOUS to ALL that Cameron and the Conservatives have ONLY one concern and that concern is NOT for the UK Citizen, but for the CITY.

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I want to be in this group of people who all line up have a picture taken all (18 times by the way) first class all the way food drink travel why would they want to solve anything ..........lol ........a Dave would have aid just a while ago .

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As Germany sees its goal of European domination drift yet further away.......

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Perhaps if France and Germany hadn`t pursued the mad dream of the euro as a one-size-fits-all currency for countries in the eurozone then we wouldn`t be in the predicament we are now. Trading could still have carried on between all countries, but in their respective currencies. This saga of bailing out Greece has just gone on for far too long. Let them leave the euro - it is doomed anyway but the eurocrats just cannot see it (or don`t want to admit their failure).

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