90% chance Greece will leave eurozone – Citi
Greece will drop out of the eurozone and reinstate the drachma in the next 12-18 months, according to a report published on Thursday.
Citi economists had previously put the chances of a Greek exit at 50 to 75 per cent.
To keep Greece afloat the European Union and IMF provided 110bn euro of bailout loans in May 2010. The money would help the government pay its creditors. After that a second, 130 bln euro bailout was agreed earlier this year.
Economists calculate that Greece may need a third rescue package worth up to €50 billion. Greece started a major austerity drive involving drastic spending cuts, tax rises, and labour market and pension reforms. The majority of Greece's private creditors agreed to write off more than half of the debts owed to them by Athens.
According to estimates Greece owes French banks 41.4 bln euro, German banks 15.9 bln euro, UK banks 9.4 bln euro and US banks 6.2 bln euro.
Citi report also said Italy and Spain may take a formal bailout from the European Union and IMF an addition to the banking aid Madrid has already asked for.
"Over the next few years, the euro area end-game is likely to be a mix of EMU exit (Greece), a significant amount of sovereign debt and bank debt restructuring (Portugal, Ireland and, eventually, perhaps Italy, Spain and Cyprus) with only limited fiscal burden-sharing,” Citigroup said in the report.
Citi writes that Greece's exit from the euro could trigger further sovereign downgrades in the single-currency bloc.
It expects at least a one-notch downgrade by at least one major agency for Austria, Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain.
Citi also sees both the US and Japan to have their ratings cut by one-notch over the next two to three years.
It said it believed Britain may also lose its triple-A rating over the same period due to economic weakness and fiscal slippage.