Harvard Professor Says Greece Will Exit Eurozone

A plan to wipe out 50 percent of Greece’s debt to international lenders is not enough to keep the economy from collapsing and eventually forcing Greece to leave the Eurozone, the 17-country institution of members using the euro as a currency, Harvard University economist Kenneth Rogoff has predicted, adding that it will likely leave within the next 10 years.
“It feels at its root to me like more of the same, where they’ve figured how to buy a couple of months,” Rogoff said as a compensated speaker at the Bloomberg FX11 Summit in New York. “It’s pretty darn clear the euro does not work, that it’s not a stable equilibrium.”
That came after European Union leaders boosted their rescue fund for Eurozone members to $1.4 trillion and convinced holders of Greek bonds to take a 50 percent “haircut” on their investments as it became clear the country could not pay back the first bailout of rescue loans of $152 billion from the Troika of the EU-International Monetary Fund-European Central Bank, which is also considering a second one of $157 billion. While that created an upsurge in the euro’s value, and stocks in Europe and the U.S., Rogoff said the initial bloom will wear off.
“My read of this is that the markets are cheered that they’re still alive,” said Rogoff, 58, a former IMF chief economist. “Even in a fairly short period, doubts will start to grow again.” Still to be worked out and susceptible to infighting and whether banks will revolt, is whether the EU can sustain Greece and its overall rescue fund institution. Next week there is a meeting of G20 nations that will discuss the Greek and European-wide economic crisis, as other countries, including Spain, Portugal, and Italy, have teetering economies as well. One goal of the agreement is to lower Greece’s debt as a percentage of Gross Domestic Product (GDP) to 120 percent. Nations historically have run into trouble when public debt exceeds about 90 percent of GDP,  Rogoff said, and without the write-down, Greece’s was projected to hit nearly twice that.
“I don’t think there’s any doubt that we’ll see more defaults beyond Greece,” Rogoff said. “The interesting question is will all the countries in the euro still be in the euro? My answer to that is no.” There’s at least as much as an 80 percent chance that Greece will leave the 17-nation common currency in the next 10 years, he said. “There’s just too many inconsistencies,” Rogoff said. Multiple independent countries using a common currency “is missing some big things and it’s just not in equilibrium.” In This Time is Different, a book he co-wrote with Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics in Washington, stated that a recovery after a financial crisis is especially protracted and that higher levels of debt tend to accompany slower growth.