A well-organized exit by Greece from the euro system is impossible, according to Erik Nielsen, chief economist at UniCredit Bank AG.
If Greece decides it wants to leave, “I am completely convinced they could not orchestrate an orderly exit,” Nielsen said in a Bloomberg TV interview on “Midday Surveillance” with Tom Keene. “This is a country that can’t implement laws, so how in the world are they going to secretly agree to print money, control the banks, control capital flows and think this is going to be orderly? It’s completely impossible.”
The nation’s credit rating was cut to CCC from B- yesterday by Fitch Ratings on concern it won’t be able to muster the political support needed to sustain its euro membership. Greek political leaders began campaigning today for the June 17 election, the country’s second vote in six weeks, after a rise in support for anti-austerity parties scuttled the formation of a government.
The benefit of an exit to Greece’s debt costs would be short-lived, said London-based Nielsen, who worked in both the International Monetary Fund’s European department and at the World Bank as a senior economist for Russia.
“A small, open economy that devalues would have a lot of inflation very quickly, so any gains won would be very transitory,” he said.
The euro has lost 1.1 percent this week to $1.2771. It traded at $1.3239 at the end of April. Yields on Italian 10-year government bonds touched 6.01 percent this week, the highest level since January.
“The euro has been sitting very tough, but investors have stopped playing the Italian sovereign market, and now the way you express your skepticism about Europe is in the foreign-exchange market,” Nielsen said. The euro will approach $1.20, he said, a level it last touched in June 2010.