Grexit polled probability strikes danger zone for the first time

June 30, 2015

Man walks by a bank in Athens, GreeceWhile Greece has been trapped in the clutches of an economic and sovereign debt crisis for half a decade, it has only been over the last month that the risk of leaving the euro has risen so dangerously high.

Market measures of risk, including sovereign bond yields, have been all over the map since the crisis began, a veritable Greek yo-yo. But the consensus view among economists polled by Reuters on the probability of Grexit has not risen above 35 percent until this week.

At 45 percent, it has reached a level at which there is a real risk of the previously unexpected event taking place. For example, while economists are famous for being slow as a group for predicting turning points in the economic cycle even though a handful of them usually are very close to the mark, probabilities rising above 40 percent have in past Reuters polls signalled an imminent turning point either into recession or recovery – or even an unexpected interest rate change.

Grexit history since 2010Most still say that Greece can still default on its IMF payment due on Tuesday, run a referendum and remain in the euro via an extended period of capital controls now that the European Central Bank has capped its emergency funding for the Greek banking system while it is faced with increasing withdrawal pressure.

It may not even come to that given that Greece late on Tuesday pleaded for a short-term bailout extension, which the Eurogroup of euro zone finance ministers will discuss later in the day.

It also is true that private exposure to Greek debt in the financial system is now much lower than it was in the past. Together with 60 billion euros worth of ECB bond-buying each month, the risk of a broader financial meltdown does look much lower than it might have been had this come to a head a few years ago.

The Reuters consensus for Greek growth already was downgraded sharply to just 0.7 percent a few months ago from 2.0 percent earlier in the year, and now is nearly sure to result in yet another recession. With unemployment still well above one in four, the situation has deteriorated considerably in a very short period of time. 

And now the risk Greece leaves the euro, based on this once-steady measure, is as high as it has ever been.

— with reporting by Swati Chaturvedi

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