There's a 90 percent chance Greece will abandon the euro by the end of 2013, said Willem Buiter, chief economist at Citi.
“Our base case (for the euro zone) is for prolonged economic weakness and financial market strains in periphery countries, spilling over into renewed recession for the euro area as a whole this year and the next,” Buiter wrote in a research note on Thursday, according to CNBC.
“We now believe the probability that Greece will leave [European Monetary Union] in the next 12-18 months is about 90 percent, up from our previous 50-75 percent estimate, and believe the most likely date is in the next two-three quarters,” Buiter added.
The Greek economy is not that large but many feel a Greek default and return to the drachma will pressure the larger Spanish economy to default on its debts and abandon the euro, which could rattle the global economy.
The yield has been spiking on the Spanish benchmark 10-year note, soaring above 7.70 percent, far above the 7 percent level deemed by the markets as unsustainable and reflecting a need for a bailout.
Eurozone policymakers recently approved a $122 billion bailout for Spain to use to prop up its banking sector and assist regional governments, though many experts widely view the country itself needs a financial lifeline.
"Even with the Spanish bank bailout, we continue to expect that both Spain and Italy are likely to enter some form of troika bailout for the sovereign by the end of 2012,” Buiter wrote, referring to the troika — the International Monetary Fund, the European Commission and the European Central Bank — which arranges bailout packages.
Troika officials are currently meeting with Greek authorities to determine if Athens is meeting obligations to pay down debts, a requirement for past bailout payments.
Concerns have arisen that Greece is missing debt targets.
"The situation just goes from bad to worse, and with it the debt ratio," one European Union official told Reuters.
"Nothing has been done in Greece for the past three or four months."
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