Ireland, Greece May Leave Euro, Standard Bank Says
Dec. 11 (Bloomberg) -- Greece and Ireland are among countries in an “intolerable” economic situation, which may lead to bailouts or even an exit from the euro area by the end of next year, according to Standard Bank Plc.
The absence of a mechanism to permit so-called fiscal transfers within the 16-nation region may undermine the exchange-rate system, said Steve Barrow, head of Group of 10 foreign-exchange strategy at the bank in London. Concern some nations will need to be rescued may drive the premium investors demand to hold 10-year Greek debt instead of benchmark German bunds to 400 basis points next year, from 214 basis points today, he said. The Irish premium may also jump, he said.
“Countries like Ireland and Greece may not be able to grow out of the current crisis,” Barrow said in a telephone interview today. “With interest-rate cuts, exchange-rate depreciation and significant fiscal support all off limits for these countries, bailouts or even pullouts from EMU may happen next year.”
The Irish Finance Ministry called the suggestion it might leave the euro area “uninformed comment,” and Greece said there was no chance it would leave.
The widening difference in yield, or spread, between Greek and Irish bonds and German securities may accelerate, increasing the debt burden for these countries, he wrote in a report today. The Irish-German 10-year spread may rise to 300 basis points next year, from about 170 basis points, he said. The spread averaged about 43 basis points in the past five years, with the Greek-German average at 67 basis points in the period.