There is no “serious risk” of a country exiting the single European currency because leaving would cause more pain than staying, said Moritz Kraemer, head of sovereign ratings for Europe at Standard & Poor’s.
There would also be “contagion effects” for neighboring European countries, Kraemer said at “The Sovereign Debt Briefing” in London hosted by Bloomberg Link.
The euro has tumbled about 19 percent against the dollar since Nov. 25, 2009 as investor concern that countries including Greece may default spurred speculation the 16-nation currency union may break up. The European Union crafted a 750 billion euro ($908 billion) rescue package in May in a bid to stem the crisis.
Greece’s economy will contract 3.9 percent this year after shrinking 2 percent in 2009, according to the median of eight economist estimates compiled by Bloomberg. The euro-region will expand by 1.1 percent this year and 1.5 percent in 2011, after falling 4.1 percent last year, median forecasts show.
Hans-Werner Sinn, president of Germany’s Ifo economic institute, said on June 3 that it would be best for Greece to leave the euro instead of implementing an austerity program to reduce its deficit. Greek Prime Minister George Papandreou pledged budget cuts worth almost 14 percent of gross domestic product to bring the deficit within the EU limit of 3 percent by the end of 2014.
“The real solution for Greece would be to leave the euro followed by a depreciation” of the new currency, Sinn said in an interview at a conference in Interlaken, Switzerland.
European Central Bank Executive Board member Lorenzo Bini Smaghi said on May 28 that there are “no alternatives” for Greece beyond following the austerity program.
Greek 10-year government bonds yielded 782 basis points more than benchmark German bunds at 9:49 a.m. in London, the most since May 7, before the rescue package was announced.