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Despite Aid, Greek Eurozone Exit Fears Live

Nouriel Roubini

Greek Prime Minister Antonis Samaras’ claim that the country’s chances of being forced out of the Eurozone are dead may have been exaggerated. That’s according to some economists, led by doomsayer Nouriel Roubini predicting there’s still trouble ahead.
Samaras convinced Greece’s Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) to start releasing a long-delayed first series of $69 billion in aid as part of a second bailout of $173 billion after he rammed a $17.45 billion spending cut and tax hike plan through Parliament on their orders. That led him to say talk of Greece leaving the euro should stop.
It hasn’t, as many economists said despite the resolve of EU leaders, that the the math is still against their declarations that all will be well and that they had overlooked key problems. “People underestimated these factors,” Roubini, Chairman of New York-based Roubini Global Economics, said in a telephone call to Bloomberg a year after predicting Greece’s exit in remarks to the 2012 World Economic Forum’s annual meeting in Davos, Switzerland.
Even though he was wrong, he insisted he could still be right, although he tempered his remarks considerably. A Greek departure “is certainly a less likely event this year, although not a zero probability.” Other Greek and Eurozone doubters included hedge-fund manager John Paulson, Goldman Sachs Group Inc. President Gary Cohn, Nobel laureates Paul Krugman and Joseph Stiglitz, Pacific Investment Management Co. Chief Executive Officer Mohamed El- Erian, Kenneth Rogoff and Martin Feldstein of Harvard University and Citigroup Inc. chief economist Willem Buiter.
Roubini – who earned his nickname for correctly predicting the 2008 global financial crisis – and Cohn, Rogoff and Stiglitz are among the skeptics returning this week to the Alpine conference as investors pull back bets against the euro and signal the worst of the three-year debt crisis has passed.
Bloomberg noted that’s a shift in tone from a year ago, when German Chancellor Angela Merkel said Europe was “labeled the big headache of the global economy” and then-Mexican President Felipe Calderon called the continent a “time bomb.” Josef Ackermann, a frequent Davos attendee who stepped down last year as chief executive officer of Deutsche Bank AG, Germany’s biggest bank, said: “I am confident that the Eurozone is broadly on the right track back to financial stability and economic strength.”
He added that, “The contagion risks of Greece leaving the euro zone were too great for everyone, and European leaders are well aware that a collapse of the euro would be the end of Europe’s status as a leading force in global politics and business.” Betting on the euro’s longevity would have made investors money last year. Those who bought junk-rated Greek bonds in January 2012 earned 78 percent, compared with 4.5 percent for German bunds, Bank of America Merrill Lynch indexes show.
“We are now back in a normal situation from a financial viewpoint,” European Central Bank President Mario Draghi said on Jan. 10, expressing hope that “positive contagion” now will lift the economy out of recession. While Roubini now attaches a 30 percent chance to Greece leaving in 2013, the probability increases to more than 50 percent in three to five years. Having once identified a 90 percent likelihood of a Greek exit by 2014, Citigroup economists maintain it will happen within two years as their base case. “Politics don’t trump everything,” Roubini said. “It’s a factor, but it’s not as if it overrides everything else.”
Greece’s debt ratio still is forecast by the European Commission to peak at 174 percent of Gross Domestic Product (GDP) this year. Along with a record 26.8 percent unemployment, entering a sixth year of recession amid social unrest against austerity, and a fragile government — highlights a nation in depression and at risk of backsliding on aid commitments, the news agency said.

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