90% chance of Grexit in next 12-18 months, says Citi

Citi is predicting a 90% chance of Greece exiting the eurozone in the next 12-18 months.

In the Netherlands, De Telegraaf reports that the bank previously put the chances of a Grexit at between 50% and 75%.

It added that there is also concern over credit downgrades hitting more of the core eurozone members as a result of the ongoing financial crisis. That core would include the Netherlands, Austria, Belgium, France, Italy and Germany.

Additionally, the bank has added a prediction that a credit downgrade could hit the US and Japan in the next 2-3 years. It also sees the UK losing its AAA rating because of the ongoing economic problems facing the country, De Telegraaf said.

In the report, Citi’s economists also suggested that Italy and Spain are likely to ask for formal bailout from other eurozone members and the International Monetary Fund. Yields on Spain’s government bonds increased steadily during the past weak, with the 10-year bond consistently trading above 7%

“We remain gloomy on the euro crisis. Over the next few years, the euro area end-game is likely to be a mix of EMU exit (Greece), a significant amount of sovereign debt and bank debt restructuring (Portugal, Ireland and, eventually, perhaps Italy, Spain and Cyprus) with only limited fiscal burden-sharing,” Citi said.

“Our base case is for prolonged economic weakness and financial market strains in periphery countries, spilling over into renewed recession for the euro area as a whole this year and the next.”

The latest concerns have lead eurosceptic Members of the Netherlands’ Parliament (MPs) to demand a debate on the latest developments involving Greece and the eurozone, reports DutchNews.

They are concerned about the mixed messages that seem to be coming from the IMF regarding lending to Greece, citing a report in German publication Der Spiegel, which suggested the IMF wants to stop aid to Greece once a permanent rescue fund is up and running.

Dutch finance minister Jan Kees de Jager said at a briefing that the Dutch cabinet did not accept that conclusion, and that MPs should await the joint decision of the EU, ECB and IMF.

Dutch Green Party MPs have meanwhile asked de Jager to investigate local banks for possible involvment in manipulation of interest rates, following the recent Libor scandal.


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