Grexit is "not inevitable", says Moody's

Sarah Spickernell
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Greece is on the verge of defaulting (Source: Getty)

Greece is likely to remain in the euro even if it defaults on a €300m repayment to the International Monetary Fund on 5 June, credit ratings giant Moody's said today.

Although analysts have speculated over the likelidhood of a Greek exit from the Eurozone, today it would not happen automatically, according to the report, which has been shared with the FT.

"A Greek exit from the Euro is not an inevitable consequence of default," said chief credit officer Colin Ellis, adding that the decision to split would be a “political act”.

In the event of a default, it lists two possible options for Greece. The first is to exit the Euro and start printing a different currency immediately, while the other is to issue a scrip, essentially a short term IOU. The latter would just be the initial stage in paving the way for Greece to adopt a new currency, buying the country more time for negotiations. Of the two options, Moody’s considers the second to be more likely.
“The issue of scrip would in itself not necessarily imply a formal exit from the single currency, if the scrip was used as a temporary measure to ease liquidity concerns,” the report said.
If the government were to require banks to accept scrip at par with the Euro, that would likely lead to a run on euro bank deposits, potentially leading to a deposit freeze and capital controls.
Capital controls would not necessarily entail exit: they were used effectively in Cyprus in 2013 to contain the pressures on the banking sector. But the prohibition on the free withdrawal of euros in Greece, and their transfer elsewhere within the currency union, could indicate a higher risk of eventual exit.

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