Robeco’s Cornelissen sees five reasons why September is crucial for the euro

Léon Cornelissen, Robeco’s chief economist, believes there are five key reasons why September is the most crucial month for the future of the euro.

1. The Troika’s return to Athens (around 5 September onwards)

Early in the month, the representatives of the IMF, the EU and the ECB will return to Athens to conclude their evaluation of Greece’s long-term growth prospects and to see how the debt-reduction plan is going. This is important because the Troika’s judgment will determine not only whether Greece receives the next EUR 31.2 billion chunk of bail-out aid but will also contribute to decisions over the country’s continued membership of the shared currency.

“The Troika will need the whole of September and probably the first week of October to audit Greece,” says Cornelissen. After its analysis is completed, the important dates ahead will be the 8 October meeting of eurozone finance ministers and-crucially-the 18-19 October European Council meeting, where Greece’s future will probably be decided.

The danger may thus not be immediate but it is very real. After all, it is hard to envisage an upbeat report from the Troika. Indeed, back in July the Troika let the Samaras government know that it was on course to miss 210 of its 300 targets.
50% chance of Greece leaving the euro in October

Still, Cornelissen concedes that the EU is a master at gaining time. “There’s a chance they will arrange fresh half-measures to let Samaras’s government struggle on along the road to nowhere,” he notes. All in all, Cornelissen believes that the likelihood of Greece being pushed out of the eurozone in October is “50-50”.

What are the implications of Greece’s departure? “The main worry in a Grexit would be an escalation of capital flight from southern Europe to the core,” he says. In that context, the July data on capital flight from Spain does not make happy reading. With EUR 74 billion leaving in the last month, deposits in Spanish banks have now fallen by nearly 11% over the last year.

Cornelissen says that “increased capital flight would force the hand of policymakers such as Merkel,” who would no longer be able to pursue her favored course of evolutionary change in the eurozone. Kicking the can down the road wouldn’t be possible any more.

Cornelissen’s trouble rating: 7/10

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