Citi chief economist Willem Buiter, the the man who coined the term “Grexit,” now thinks Greece leaving the eurozone is the most likely outcome, or Citi’s base case, just three months after the bank said an exit was “unlikely.”
The country’s fateful referendum on Sunday emphatically rejected the bailout deal Greece’s European creditors had offered, leaving the country with shuttered banks, capital controls, and the prospect of being practically ejected from the single currency if it doesn’t present a much more acceptable plan very soon.
Investment bank economists have been queueing round the corner to declare that Greece is about to leave the eurozone since the resounding “No” vote in Sunday’s vote. Citi is special because Buiter was the first to come up with the popular portmanteau for Greece’s potential exit from the eurozone.
Here’s their reasoning, in short:
We are changing our view and now believe that Grexit — Greece’s exit from the Eurozone — is the most likely outcome, either via a short-term exit (next few months) or over the next 1-3 years. The proximate drivers of our change of view are the announcement of the referendum, the imposition of capital controls and the emphatic NO outcome in the referendum.
Buiter has a chequered history when it comes to predicting Grexit himself, despite inventing the term.
Here’s a timeline:
- February 2012: The Citi analysts send out their note, in which “Grexit” was first used. He said there was a 50% chance of the event happening then.
- June 2012: Buiter wrote in the Financial Times that the then-fresh New Democracy-led government meant Grexit was delayed, but suggested that the burdens of austerity made it still clearly possible.
- July 2012: By this point he raised his probability of Grexit within 12-18 months to 90%.
- October 2012: He cut that probability back to 60% a few months later.
- May 2013: Grexit was dropped as Citi’s base case, meaning that they thought it was now more likely not to happen.
- 2013-2014: For much of this period Greece dropped out of headlines, with the euro crisis over (or at least paused).
- April 2015: A research email from Citi (but under the names of analysts other than Buiter) said “we continue to see Grexit as unlikely.”
- July 2015: Grexit is now Buiter’s base case again, with a probability of “over 50%” in the next three years.