Citi sees 90 pct chance of Greece leaving the euro

by on July 26, 2012 6:37 am BST

MILAN, July 26 |
Thu Jul 26, 2012 2:37am EDT

(Reuters) – The chances of Greece leaving the
euro in the next 12-18 months have risen to about 90 percent,
U.S. bank Citi said in a report on Thursday, saying Athens was
most likely to quit the single currency within the next two to
three quarters.

The report, dated July 25 but distributed in an email on
Thursday, said the bank expected Italy and Spain to take a
formal bailout from the European Union and IMF on top of the
banking aid for which Madrid has already asked.

Citi economists had previously put the chances of a Greek
exit at 50 to 75 percent.

“We remain gloomy on the euro crisis,” Citi economists said.

“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 it expected Greece’s exit from the euro coupled
with economic weakness in the euro zone’s periphery to trigger
further sovereign downgrades in the single-currency bloc in the
next two to three quarters.

It saw at least a one-notch downgrade by at least one major
agency for Austria, Belgium, France, Germany, Greece, Ireland,
Italy, the Netherlands, Portugal and Spain.

Outside the euro area, Citi expects both the U.S. and Japan
to have their ratings cut by one-notch over the next two to
three years. Also Britain may lose its triple-A rating over the
same period due to economic weakness and fiscal slippage.