Friday 24 November 2017

Constantin Gurdgiev: Greeks unlikely to pull out but best we be prepared

A disorderly unwinding of the eurozone would wreak havoc for Ireland, and cannot be ruled out, warns Constantin Gurdgiev

In considering the possible scenarios for Ireland's position vis-a-vis our membership of the euro area, one must have an explicit understanding of the current conditions and the likelihood of the euro area's survival into the future.

In my opinion, there is currently a 60 per cent chance that Greece will remain within the euro area post elections, but will exit the common currency within three years. Under this scenario, the European Central Bank -- either via the European Stability Mechanism or directly -- will have to provide support for an EU-wide system of banking-deposit guarantees, and new writedowns of Greek debt, as well as a full support package for Spain's exchequer and banks. Ireland, in such a case, can, in the short term, benefit from some debt restructuring. Part of the package that will allow the euro area to survive intact for longer than six to 12 months will involve increased transfer of structural funds to stimulate capital investment in the periphery, including Ireland.

On the other side of the spectrum, there is a 40 per cent probability that Greece exits the euro area within 12 months, either in a unilateral, unsupported and highly disorderly fashion (20 per cent) or via a facilitated exit programme supported by the euro area (20 per cent).

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