Greek euro exit prospect splits economists: Reuters Poll

LONDON Thu May 10, 2012 10:15pm IST

A European Union (L) and Greek flag wave in front of the Parthenon temple in Athens April 11, 2011. REUTERS/John Kolesidis/Files

A European Union (L) and Greek flag wave in front of the Parthenon temple in Athens April 11, 2011.

Credit: Reuters/John Kolesidis/Files

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LONDON (Reuters) - Greece is leaning on the euro zone's exit door but economists polled by Reuters around the world are split over whether it will fall through it.

But they are in little doubt that Greece can still spread economic havoc, in spite of firewalls of money hundreds of billions of euros thick built by Europe's institutions since the sovereign debt crisis started in Athens two years ago.

A slim majority - 35 out of 64 economists polled over the last two days - thought Greece would still be in the euro zone by the end of next year.

The rest thought it would not be.

There was little evidence of regional bias among forecasts on Greece's future in the euro zone. Economists working for Anglo-Saxon institutions, sometimes more eurosceptic than others, were no more likely to predict a Greek exit than those in the euro zone or elsewhere.

Greece is stuck in a profound political deadlock after voters punished mainstream parties that backed harsh austerity in exchange for international bailout cash.

That left the Greek parliament with a jumble of minority parties that have been unable to form a government. A return to the polls looks likely within weeks.

An overwhelming majority of economists - 50 out of 65 -however, agreed that Greece still poses a grave danger to the euro zone economy and its very existence.

"Contagion to other peripheral countries in the event of a Greek exit from the euro zone is underestimated by the market in our view," said Guillaume Menuet, economist at Citi, who gives a 50 to 75 percent chance of Greece leaving the euro zone.

A senior European Union official said on Thursday there was no desire among euro zone states nor Greece itself to leave the currency union.

And the EU's top officials and political leaders have telephoned Greek party leaders to spell out that if Greece wants to stay in the euro, it must abide by the terms the bailout deals, in a loosely coordinated strategy.

Among the half or so who thought there will be no euro zone exit, there was a common view that Greece's continued membership would simply be the least worst option.

"Greece should not leave the euro zone," said Jean Louis Mourier, economist at French investment company Aurel BGC, seeing some European move to boost growth.

"Greece should benefit from new measures packed in a new growth pact. (It) will not replace the stability pact, but it will be added in order to help the stability pact to work."

The country is locked in a depression and faces years of recession and widespread unemployment, which hit a new record in February with more than one in five out of work.

So far Greece has been bailed out twice, comprising a 130 billion euro package that refinanced the government's debt pile in February and an earlier 110 billion euro deal in May 2010.

PLUS ÇA CHANGE

French President-elect Francois Hollande, the weekend victor of another election driven by resentment against austerity, is the leading proponent of a new euro zone economic growth pact.

Euro zone countries like Greece, Spain and Portugal face crippling recessions this year and next and spiralling unemployment, making their strict budget targets harder to meet.

Economists were again split - 30 versus 36 - over whether the Greek and French elections will yield a real change in the economic policies over the euro zone, based until now on a German tonic of staunch budget discipline.

German Chancellor Angela Merkel on Thursday stood her ground and rejected calls for new economic stimulus policies that rely on new debt.

While the rhetoric from Germany and Europe's governing institutions has stayed firm on the need to get state finances in order, leaders have struggled to decide how to respond to Greece's election.

The European Financial Stability Facility (EFSF), a 700-billion euro bailout fund, kept Greece afloat on Wednesday with a payment of 4.2 billion euros, despite opposition from some member states.

Thirty-eight out of 64 economists thought it was likely or very likely that international lenders would turn off their bailout taps for Greece if a new government tried to reject or renegotiate the bailout package.

With the latest EFSF payment, Greece has funds to last until June. By then, a new government may have formed, but the economists warned of the potential for yet more political chaos.

"An orderly withdrawal of Greece from the euro zone is now likely to appear to EU policymakers to be the least damaging outcome of the current situation," said Stephen Lewis, economist at Monument Securities in London.

(Reporting by Andy Bruce; Editing by Ross Finley/Jeremy Gaunt)

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