But Citi explains a Greek exit from the euro zone is closely linked with its limited cash reserves, which may be depleted well before the year end: “A Greek EMU exit could be triggered by the government’s need to print money to cover its spending.”
Citi adds that Greece's new currency will immediately fall 60 percent versus the euro and “remain depreciated by 50 to 60 percent for the next five years.”
Based on this scenario, the bank believed that Greece’s real gross domestic product will shrink by about 10 percent in 2013. However, it could rebound by 4 percent to 5 percent in 2015-2016, as gains in cost competitiveness revive exports, especially tourism, Citi wrote.
Addressing Spain’s banking sector troubles , Citi expects “some kind of troika program for Spain to be agreed this year or in early 2013." Its main goal will be to fund a recapitalization of the banks, though there is a chance it could be used for the funding of the fiscal deficit as well, according to Citi.
On Thursday, Spain’s Prime Minister Mariano Rajoy reiterated the country had no “interest and no need” for a recapitalization of its banking sector through the European rescue fund.Page 2 of 3 | Prev Page | Next Page