Mohamed El-Erian sees 85% chance of 'Grexit'

Mohamed El-Erian, the well-known economist and chief economic adviser at Allianz, sees an 85% chance of Greece leaving the euro and now expects a “massive economic contraction” in the Hellenic nation.

In an interview with Bloomberg on Monday, the former PIMCO boss said Greece will likely be forced to leave the Eurozone in the next few weeks.

His comments followed the government’s decision to hold a referendum on bailout terms on 5 July and put in place capital controls on banks until after the public vote.

With cash withdrawals from ATMs limited to just €60 a day for the next week, El-Erian labelled the current crisis a “tragic situation” and likened Greece to being in an “intensive care unit”.

What we are seeing here is what economists call the sudden stop, when the payment system stops

“What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it’s going to make continued membership of the Eurozone very difficult for Greece,” he said.

In regards to the fallout from a potential ‘Grexit’ on the wider Eurozone economy, El-Erian said the ECB’s bond-buying programme will be key in determining the level of contagion.

He said that if asset purchases were to be increased, it could create a “firewall” for the peripheral bond market.

You may also enjoy reading:

UK government "stepping up" plans for possible 'Grexit'

EU should brace for 'Grexit' unless Athens abandons 'state of denial', says German MP