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IMF and EU cannot decide on impact of a Grexit to other euro zone members

IMF’s chief economist Olivier Blanchard expressed hope that there will be an agreement with Greece, however he stressed at the same time that a Greek crisis cannot be ruled out. By “Greek crisis” Blanchard probably meant a “Greek exit from the euro” because as everybody knows since long ago that there is indeed a “Greek crisis”…

Anyway, Blanchard warned that

 “a Greek exit from the eurozone would be particularly painful for the country”

but he claimed also that

“the rest of the eurozone is better placed to handle a Greek exit, as the protection walls that did not exist have now been put in place.”

Blanchard’s and IMF’s opinion is not shared by the EU though. European Union foreign policy chief Federica Mogherini urged Europe on Tuesday to “show flexibility in dealing with the Greek debt crisis not just out of a sense of solidarity but to defend the common interest as well.” Mogherini warned:

“If one falls, the whole system falls, I’m very much convinced of that,” she said.


Excerpt from Olivier Blanchard’s press briefing

QUESTIONNER? You mentioned Greece and the risk that is still going on in Greece. Unlike foreign exchange markets, you are a player in Greece. Is it not time to restructure Greece’s debt?

MR. BLANCHARD: Look, you understand why we try to finish before the—


MR. BLANCHARD – We are clearly in the middle of negotiations with the Greeks. We very much want to come to an agreement and we hope we will. Now, what happens if no agreement were reached? I think that a number of things are fairly clear. The first one is that, say, an exit from the euro would be extremely costly for Greece. It would be extremely painful.

The second point is that, looking at the rest of the Eurozone, the rest of the Eurozone is in a better position to deal with the Greek exit. Some of the firewalls which were not there earlier are there. Still, it will not be smooth sailing, but it could probably be done. The third is that if that were to happen, I think the way to reassure markets and make progress is actually go further, use the opportunity to make progress in terms of the fiscal union and the political union. This would be clearly the right moment to do it. (IMF website)

IMF’s Economic Outlook on Greece
While the two Institutions and Greece’s creditors cannot agree on the impact of a Grexit to the rest of the euro zone member countries, the IMF has revised some of its projections to Greece.

Note that in its April’15 World Economic Outlook, IMF expects 2015e GDP growth of 2.5% y-o-y accelerating further to 3.7% in 2016e.

In its October’14 WEO, IMF expected Greek GDP growth of 2.9% y-o-y in 2015e.

The IMF also downgraded its forecast on Greece’s unemployment rate to 24.8% in 2015e (from 23.8%), while it now expects CPI to average -0.3% in 2015e vs -0.8% in its Oct’14 forecast.

I assume, the IMF technocrats keep on adding, erasing and falsely multiplying on their tablets and iphones the future of Greeks, while Brussels keep on calling Berlin.

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  1. Really? Are we to put much faith in the forecasts of the impact of a Grexit from the people who forecast their austerity program to result in “only” a 5.5% GDP contraction and 15% unemployment?

    • keeptalkinggreece

      no, we don’t put faith. we just upload statements for the sake of blogging and commenting 🙂

  2. The following from a To BHMA article today- interestingly even if Greece where to default they still have to commit to the implimentation of all reforms agreed upon.

    The German newspaper Die Zeit has claimed that the German Ministry of Finances is examining plans that would allow Greece to default within the Eurozone, with the assistance of the European Central Bank.

    According to the newspaper article, the main condition for such a default would be for the Greek government to commit to the implementation of all reforms that are agreed upon.

    When asked to respond, the German Ministry of Finances refused to comment.

    Still under German control