Risk of a Greece exit from Euro between 50-75%: Citibank

In an interview to CNBC-TV18, Steven Englander, global head of forex strategy at Citibank finds that there is a lot of pretense between the European Central Bank (ECB) and the Greek politicians.

“Both sides realise that the cost of Greek opting out of the euro zone is going to be very high both in terms of losses to the creditors and in terms of losses to the disruption in economic and financial activity in Greece,” he says.
Englander says the risk of a Greece exit is between 50% and 75% although they are talking about it in the next year or so. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: Put into prospective the events of the last 24 hours. Mr Draghi says the ECB won't compromise on key principles. With their reluctance to have monetary dealings with some Greek banks till they are capitalised, should we read all this as one step closer to accepting a Greek exit or preparing for it?
A: I think there is a lot of posturing on both sides. Both sides realise that the cost of Greek opting out of the euro zone is going to be very high both in terms of losses to the creditors and in terms of losses to the disruption in economic and financial activity in Greece.
Both sides are still hoping that they can cut a deal and that maybe the second election will provide if not a stable government at least a temporary government that can reaffirm the bailout agreement. I wouldn’t mind comments that say ‘no-never.’ I would tend to read them as saying we have a limit and we won’t be pushed beyond that limit. Q: What are the bets of Greece exiting? Is the probability as high as 20% or 50%? What are you or what is the market working with?
A: Our economists say the risk of a Greece exit is between 50% and 75% although they are talking about it in the next year or so. I think the market is beginning to reconcile itself with the risk of a Greek exit. Where the debate is now what will be the impact on other countries?
Whether countries like Spain, Portugal and Italy will feel the contagion affect because of a Greek exit or which the markets will say good riddance because the Greek economy was way out of line with that of its euro zone peers and it was unlikely that they were ever going to fulfill their debt obligations under the bailout plan and that the euro zone is better without them. I tend to think that the costs are still quite high.