EUROZONE-GREECE-ECONOMIST Grexit 80 percent likely says leading German economist

Record ID: 148202

  • Title: EUROZONE-GREECE-ECONOMIST Grexit 80 percent likely says leading German economist
  • Date: 6th July 2015
  • Summary: BERLIN, GERMANY (JULY 06, 2015) (REUTERS) EXTERIOR OF BERLIN UNIVERSITY BUILDING CLOSE UP OF ENTRANCE TO UNIVERSITY BUILDING, READING (German) 'HARNACKHOUSE" BACKYARD OF UNIVERSITY VARIOUS OF GERMAN POLITICAL ECONOMIST HENRIK ENDERLEIN FROM THE HERTIE SCHOOL OF GOVERNANCE IN BERLIN IN INTERVIEW (SOUNDBITE) (English) GERMAN POLITICAL ECONOMIST HENRIK ENDERLEIN FROM THE HERT
  • Embargoed: 21st July 2015 13:00
  • Keywords:
  • Location: Germany
  • Country: Germany
  • Topics: General
  • Reuters ID: LVA22QB4FGP689GICJPP2M3R5Y74
  • Aspect Ratio: 16:9
  • Story Text: German political economist Henrik Enderlein from the Hertie School of Governance in Berlin said on Monday (July 6) that though Grexit seemed likely to happen, a deal between Greece and its European partners could still be reached.
    Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday (July 5), throwing the future of the country's eurozone membership into further doubt and deepening a standoff with lenders.
    "The next 48 hours will be crucial, because after this 'no' vote it is really hard to come back to the negotiation table. In the past weeks, the Greek government, in every compromised situation, went back and said 'this is unacceptable, we don't want to continue negotiations, this is all provocation and so on'. There was no context for a constructive deal. If Alexis Tsipras, after this 'no' vote - which is a victory for him - claims this victory and continues provocations and says 'now I want a much better deal', then I have very little hope that Grexit can be avoided. If, on the other hand, he steps back and says 'ok, the Greek people has given a clear signal but I am not going to use this to actually put additional pressure on the euro area countries. What I would want to obtain is just a very constructive deal now', then there could be still some chances that we can get to a deal in the next weeks," Enderlein told Reuters in Berlin.
    Greek Prime Minister Alexis Tsipras called for a referendum to protest against the tough international bailout. The move was followed by a clash with foreign lenders that pushed Greece close to financial chaos and forced a shutdown of its banking system.
    Greece's banks could run out of cash within days and the European Central Bank's (ECB) decision about whether to extend emergency liquidity will be crucial. The ECB is due to meet later on Monday and European leaders have called a summit for Tuesday to discuss their next move.
    A positive negotiating position would be needed on the Greek side in order to start talks again, Enderlein said.
    "This situation is extremely dangerous for the euro area. The probability, from my perspective, that Grexit will occur is roughly 80 percent. So there is only a minor chance that we can convince the German parliamentarians that they need to vote another round of support for the Greek population. If the German government now puts something to vote in the German parliament, German parliamentarians could say 'well, the Greek people have spoken and have said 'no', now the German people will speak and they can also say 'no'. And then we are in a stalemate situation which inevitably will lead to a Grexit. In order to avoid this, I think the first signal needs to come from the Greek government, saying: "We are not vindictive, we don't want to provoke. What we actually want to do now, after that clear signal put a constructive deal on the table, we now want to talk," he said.
    Greece's banking system is on the brink of collapse, with estimates its four top banks have less than 1 billion euros of liquidity remaining, and could need nationalizing.
    The ECB is likely to maintain emergency funding for Greek banks at its current restricted level, according to market analysts, which will see lenders run out of cash soon. For Enderlein, a Greek exit from the Eurozone would be bad for the country and hoped it could still be avoided.
    "I think for Greece, Grexit would be a disaster. We would go into two-three more years of recession, a massive increase in unemployment, inflation would sky-rocket. The two most important import goods that will be more expensive in the Greek economy are medication and energy. So, average, to poor families in Greece, will be hit massively by a Grexit. And I think the humanitarian implications are really a source of concern in the heart of the European Union and it should be avoided," he stated.
    Banks are expected to stay shut for the foreseeable future, and Athens could need to start printing money when they do re-open. A new financial system may need to be built, with banks nationalized and transformed into new lenders as part of a multi-year workout, analysts and restructuring sources said.
    The exposure of overseas banks to Greece is relatively modest, after lenders, notably those from France and Germany, sold businesses and scaled back their Greek assets in the past four years. But investors are worried the crisis could drive up borrowing costs for governments and companies and increase losses from bad loans.
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