Greece's Departure From the Euro Seems Inevitable

NEW YORK, Sept. 14, 2011 /PRNewswire/ — Removing Greece from the eurozone might be the best solution to ending the uncertainty and volatility in the European markets and would remove one of the biggest hurdles impeding an economic recovery in Europe, according to a white paper from Newton*, theLondon-based global asset manager that is part of BNY Mellon Asset Management.

“We have believed for some time that Greece’s withdrawal from the eurozone is inevitable and all plans introduced until now have simply been about building enough time for the European financial system to prepare for this eventuality,” said Paul Brain, investment leader for fixed income at Newton.  “With the possibility of a Greek default becoming more likely every day, time has run out.”

The Newton report suggests that the default resulting from Greece’s departure from the eurozone would have a 40 percent recovery rate and would reduce the Greek deficit to more sustainable levels. Brain believes that a new drachma currency would have to be introduced and support from the International Monetary Fund would be required as Greece transitions to its new currency.

“The hit to the Greek economy would be huge, but would it be any worse than the present situation of depression and growing deficits?” Brain added.  “Current Greek bond prices almost reflect this scenario, so it should not come as a surprise.”

According to Newton, one potential outcome of a breakup due to a Greek default would be a stronger euro.