Will Greece leave the euro?

24 May 2012

Economists and fund managers are divided as to whether Greece will leave the euro.

Peter Westaway, chief economist at Vanguard and an ex-Bank of England economist, argues that Greece will not exit the euro as the costs to the rest of the eurozone will be to high.

He adds: "Hopefully we'll get to the election on 17 June, but something might explode sooner than that."

Bill O'Neill, chief investment officer at Merrill Lynch Wealth Management, also doesn't believe the crisis-hit southern European state will leave the single currency.

"An exit is not our central scenario, particularly given the degree of eurozone integration which is primarily through the financial sector," he says.


However, Dominic Rossi, global chief investment officer for equities at Fidelity Worldwide Investment, says it now looks "inevitable' than Greece will leave the euro, and warns against possible contagion spreading to Spain and Italy.

"If Greece does leave, the thing to watch will be the opinion polls in both Spain and Italy," he says.

"The austerity programmes in these countries have been losing support publicly over the last few months. We will see a very firm jolt to public opinion and that will give greater legitimacy to the Spanish and Italian governments to get on and do what they need to do."

Likewise, Jonathan Loynes, chief European economist at consultancy Capital Economics, believes there will be a "limited form of break-up – in which a Greek exit is followed only by Portugal and perhaps Ireland".

"The direct economic and financial effects of a Greek exit need not be catastrophic. The key question remains whether the policymakers can prevent contagion effects from prompting a bigger and much more damaging break-up of the currency union," he says.

Meanwhile, the UK economy contracted by 0.3% in the first three months of 2012, rather than the 0.2% previously thought.

The drop, according to revised figures from the Office for National Statistics, was due to a larger contraction in construction output. The new figure confirms that the UK is in recession, after a previous fall of 0.2% in the final quarter of 2011.

This article was written for our sister website Money Observer

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