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What would Grexit look like?

Friday, February 20, 2015 - 02:32

As talks between Greece and its euro zone partners become increasingly precarious, Joel Flynn asks how likely a Greek exit from the euro zone is, and what the consequences might be.

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The possibility of a Greek exit - or "Grexit" from the euro zone back on people's lips, as talks over Greece's financial future continue to flounder. In 2012 it was a similar picture. The difference then - much more worry at the thought of one of the founding members of the European project leaving - and paving the way for others to do the same. But this time, say some, things are different. Vicky Price is an economist and a Greek expert. SOUNDBITE: Centre for Economics and Business Research Chief Economic Adviser, Vicky Price, saying (English): "Since the crisis, since the possibility of Greece leaving in 2012 it was realised that the institutions of the euro zone were just not there, and they had to be created, particularly some money should have been put aside to ensure the crisis we're beginning to see in various countries which resulted in yields in fact rising very significantly - we're talking about Spain and Italy for example, over that period - can now be dealt with by ensuring there is earlier intervention from some central fund." ECB action has helped assuage fears about a possible Grexit. But since Syriza's election last month, efforts to renegotiate its bailout terms have seen those fears reemerge. If Greece does leave, Reuters John Geddie says all the ECB's good work could be for nothing. SOUNDBITE: Reuters European Bonds Correspondent, John Geddie, saying (English): "What it will come down to on an exit is how much trust investors put into what what politicians have told them all along, that effectively a country joining the euro area is irreversible, and if it proves not to be, then that opens up a whole number of questions as to who might be next or will the project survive, and that will cause a lot of instability in markets and I think you could see a rather big selloff." SOUNDBITE: Reuters Reporter, Joel Flynn, saying (English): "So let's take a look at some numbers. Just one in four of the economists polled by Reuters think a Grexit will happen this time around. Compare that to the 90 percent Citigroup predicted for the outcome at the height of the debt crisis in 2012. Since then we've had trillions of euros in euro zone bond buying from the European Central Bank and a promise from its head Mario Draghi that it would do "whatever it takes" to support the euro. But Greece still needs to cover its bailout of a staggering 240 billion euros. With the ECB already expanding its balance sheet again by a trillion euros to fight off deflation, the cost of a Grexit could see costs soar even more." If a Grexit does happen, the fallout could be substantial. And that, say some, could mean the beginning of the end of the euro zone project.

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What would Grexit look like?

Friday, February 20, 2015 - 02:32