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IIF's Dallara says Greek euro exit not 'foregone conclusion'
Charles Dallara, managing director of the Institute of International
Finance, has insisted that Greece’s exit from the eurozone is not
inevitable and called on the country’s leaders to find common ground
with their eurozone counterparts.
“I guess I am part of a
dwindling group of those who do not believe that it’s a foregone
conclusion that Greece will leave the eurozone,” told Channel 4 news in
the UK on Monday night.
“I believe that the cost to Greece, the
cost to Europe and the cost to the entire global economy may still be
enough to cause Greek politicians and European politicians to pause
before they pull the trigger on a Greek exit.”
Dallara warned that
those who believe the effects of Greece leaving the eurozone and
defaulting on its debt could be managed are mistaken.
“A Greek
exit is so unlikely to be well-managed, so likely to be disorderly that
it will pose a threat to financial institutions around the world but
more fundamentally not just to financial institutions but to the global
economy,” he said.
“I think it could well precipitate another
global recession the likes of which we are still trying to crawl out
from and that’s why at the end of the day cooler heads may prevail
here.”
Dallara, who was the key negotiator for private investors
in Greece’s recent debt restructuring scheme (PSI), also played down
concerns over whether Greece would pay a 450-million-euro foreign law
bond that is due on Tuesday.
“The payment due this week is a
rather different development because it is part of the few earlier Greek
loans that has not been restructured as part of the voluntary deal we
negotiated because it’s being held by certain financial institutions
that are holding out for better terms,” he said.
Dallara advocated
that the eurozone uses this crucial moment in the Greek crisis to
rethink its strategy for tackling the problem.
“I think the more
fundamental issue is whether Greece is able or not to do enough to
secure continued support by the eurozone. I think this presents an
opportunity for the eurozone leadership to step back and ask whether
their approach to Greece and more generally their approach to other
struggling countries in Europe needs some substantial revision: less
focus on short-term budget cutting, more focus on long-term budget
discipline and structural reform and greater financial support by
Europe.”
Dallara also expressed hope that Greece’s political
instability would soon come to an end and that a new government would be
able to negotiate with the EU and IMF.
“I don’t think we should
be ready yet to give up on the prospect that Greece with benefit of
another election may find new leadership and that leadership may decide
to work with the leadership of Europe if there is pragmatism on both
sides,” he said.
“It’s important to keep in mind that a Greece
exit from the eurozone is most likely going to lead to Greek default,
not just to private creditors but to the bulk of those creditors which
are the official institutions of Europe and multilateral institutions
such as the IMF. This could have very severe consequences because Greek
exposure to the ECB is well over the ECB capital. At the eleventh hour
there may be a desire on the part of Greek authorities and the eurozone
to find some common ground.” | 
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