- Currency trading bank says Greece’s new currency would fall by 60%
- European markets relatively stable today despite the dire warning
- FTSE-100 up 1.18%; CAC 40 up by 0.85%; DAX up 0.39%
- Had plunged yesterday after Bundesbank said Grexit would be better
- France and Germany disagree over Eurobonds at six-hour crisis summit
- Officials say growth-led French gaining ground on austere-Germans
- Nick Clegg to take swipe at those urging for Greece to quit the euro
The euro crashed to a 22-month low yesterday as the European economy took another dramatic turn for the worse.
Figures showed the biggest slump in private sector business across Europe this month for nearly three years.
The dire news sent the euro tumbling against the dollar to $1.25 – its lowest level since July 2010. Against the pound it was worth little more than 80p.
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Rift: French President Francois Hollande (left) and German Chancellor Angela Merkel (right), pictured at the EU summit yesterday, have differing views on how the debt crisis should be tackled
The latest gloom came against a backdrop of a continuing sense of crisis over Greece as Berlin and
Paris remained at loggerheads on what to do, despite the emergency Brussels summit that ended in the early hours of yesterday morning.
This comes as a senior economist at the world’s second-largest currency trading bank claims Greece will leave the single currency eurozone on January 1, 2013.
Citigroup’s Michael Saunders said Greece’s new currency would fall in value immediately by 60 per cent – and unleash a massive, yet manageable, wave of contagion across Europe.
In a note to clients, he said the likelihood of Greece leaving the euro in the next 12 to 24 months was now between 50 to 75 per cent – and assumed there would be a ‘Grexit’ at the start of next year.
The firm based its case on the belief that Greece would fail to form a government capable of implementing austerity measures after its next set of elections on June 17.
This would ‘accentuate’ the stalemate between the nation and its creditors.
Mr Saunders said: ‘We assume Grexit occurs on January 1, 2013, with Greece staying in the EU and receiving external loan support [to mitigate risks of social unrest and collapse of civil society].
‘We expect that Grexit will be followed by a series of policy responses aiming to prevent a domino-style collapse of the banking system and escalating economic disruption.’
The claim came as stock markets across Europe remained stable today despite increased fears of Greece’s chaotic exit – and a growing rift between France and Germany on plans to save the single currency.
Markets plunged yesterday after the mighty German Bundesbank warned it would be better to let Greece leave the euro than give its crippled economy any more cash.
Before we all join together to kick the Greeks when they are down, let us be clear why the country has kept missing the targets.
The Troika originally said that Greece’ economy would contract by 2.6pc in 2010 under the austerity regime, before recovering with growth of 1.1pc in 2011, and 2.1pc in 2012.
In fact, Greek GDP has been in an unbroken free-fall. It did not grow last year. It contracted a further 6.9pc, and is now expected to shrink 6.7pc this year.
This was entirely predictable – and was predicted by many critics – since Greece faced an IMF-style austerity package without the usual IMF cure of devaluation. The Troika’s ideology of “expansionary fiscal contraction” – which the IMF has to its credit since abjured, but the fanatics in charge still swear by – is breaking a whole society on the wheel.