Grexit Was Very Close to Reality In 2012: Juncker

Grexit Was Very Close to Reality In 2012: Juncker

Former Eurogroup President and current Prime Minister of Luxembourg Jean-Claude Juncker indicated in an interview that Grexit would have been not only a possibility, but a near reality in 2012.

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Grexit Was Very Close to Reality In 2012: Juncker

Term Grexit coined by Citi Chief Economist William Butler:

The term Grexit has been coined by Citi chief economist William Butler to signify Greek’s exit from Euro.

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Jean-Claude Juncker in an interview with MNI News published on Tuesday indicated that in May and June 2012, speculation was all around world was bidding on a Grexit. However he feels the awful word has disappeared. He expressed satisfaction at the progress made in Greece’s reform program, despite the country edging extremely close to the exit door about a year earlier.

After the inconclusive elections in May 2012, in another election held in June 2012, pro-austerity party New Democracy tried to cool down fears of Greece not complying with the bailout conditions. However, later that year, the government reached a deal on unpopular austerity that was required to unlock bailout money.

The former Eurogroup President in his interview expressed confidence that Greece is moving in the right direction, while the remaining parts of the program are expected to be implemented in the next few months. Further the current Prime Minister of Luxembourg exuded confidence that Greece would achieve primary surplus and would regain access to financial markets within a few years.

Lower Risk Of Grexit Now: William Butler

The improvement in sentiment was also echoed by Citi chief economist William Butler as there is lower risk of Grexit now, thanks to creditor nations taking a more relaxed line on fiscal targets coupled with Greece’s coalition government holding together.

Fitch Ratings also raised Greece’s credit rating by one notch on May 14, in recognition of what Greece has achieved in tackling its deficits and reforming its economic structure, aided by its stabilized political system.

Despite its recent improvement in sentiment, Greece’s access to capital markets remain restricted, as the yield on its 10-year notes remain at the unsustainable level of around 9 percent, though this is much less from the peak rate of 41.3 percent reported in March 2012.

Echoing change in sentiment, Greece’s stock market too nearly doubled in value during the past one year, with over 53 percent of total market capitalization is invested by foreign investors.

The declining yield and improvement in stock price is the right prescription for direct investment opportunities in Greece.

The new found opportunity is to be tapped by a few banks in Greece by raising 10 percent of capital needed to avoid nationalization. Besides two state-owned energy companies in Greece, DEPA and DESFA are to join the fund-raising exercise by offering shares to public through the privatization program initiated by the Government.

Thus 2013 proved to be quite significant for key countries. For instance, at the beginning of this year, U.S.A. took a few steps back from falling into the fiscal cliff. Greece too initiated significant steps from getting into the Grexit door.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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