May 6, 2011, 4:48 p.m. EDT
‘Zero’ chance Greece to ditch euro: Papademos
By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) — There is no chance Greece will leave the euro, the country’s former central-bank chief said Friday after a published report said there was such a possibility, which contributed to a big drop in the value of the currency.
Lucas Papademos, the former vice president of the European Central bank and former governor of the Bank of Greece, told MarketWatch in a telephone interview from Boston that the costs would far outweigh the benefits.
“There is zero chance, for the simple reason it entails costs that are far beyond any possible benefit,” he said. “For Greece, the impact would be much worse than they are facing now. For those who think properly through the options, it is not an option.”
The article that set off the talk on Friday — from the German publication Spiegel — itself pointed out the immediate problems leaving the euro /quotes/comstock/21o!x:seurusd EURUSD 0.0000% would entail. The story cited a German finance-ministry document calculating that the new drachma would lose as much as 50% of its value, sending Greece's national deficit to 200% of gross domestic product.
The Greek government aggressively countered that article, calling it “not only completely untrue but also written with incomprehensible flippancy.” Read more on Greek finance minister's comments.
Papademos himself paused when considering why some in the German government evidently suggested the story. “One can speculate, but most of the story focuses on how costly it would be for Europe. Maybe in order to convey message that people who have it on their mind should think twice, it may not be desirable or attractive for [Greece’s euro-zone] partners,” he said.
Papademos, now a visiting professor at the Harvard Kennedy School, said even a restructuring of the debt, which is widely speculated in financial markets, can be avoided — suggesting that privatization could put Greece on a different financial footing. The Greek government is due to soon announce its plans.
“It’s not so much companies, because the total amount is not huge, but it could involve ports and airports. There could be long-term leases of public land and other real estate, which according to official records is quite extensive,” he added. “If things are done correctly, then there could be a big change in sentiment in a year and a half, which may not make it impossible to come to market.
“At present, it seems very difficult,” Papademos continued. “It is true that over the past few months or weeks, spreads have gone through the roof.” On Friday, the cost of insuring $10 million of Greek debt against default for five years cost about $1.4 million annually, more than double the cost of even euro-zone straggler Portugal.
Achieving a restructuring will be very difficult, he said. See earlier story on Greek restructuring options.
“One will have to see in practice how that can be achieved in a way that also has financial benefits,” he commented. “In principle, it can be done in a ‘market friendly’ way that does not entail loss or perhaps some losses that are not problematic.”
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
| 