One of the preferred matters, on which gamblers have enjoyed placing their wagers for some time now, concerns the probability of a Greek exit from the Euro group in 2015. To some people this hot topic may be nothing more than a bet, but, in fact, it may be an event triggering a series of consequences for the local economy and, to a certain extent, for the EU.
Where the reason behind the problem lies
According to some experts, the current deadlock was due to the fact that economic common sense was put in the background, so that political reasons and ideology could come forth. Greece became a member of the Euro group at a time when it was not ready to make such a move. Experts claim that the Maastricht idea of a single currency region appeared as some sort of a cure to the ”old European warmongering”, while countries such as Greece were extorted by Berlin, Brussels and Washington to sever its relations with Serbia in the 1990s, in order to financially integrate itself within the European Union. European policy makers have conducted a relentless government spending and deregulation measures during the past decade or so, which led to a tremendous indebtment. At the same time, they publicly spoke in favor of the stern Maastricht criteria, regarding the reasonable levels of the gross debt (no larger than 60% of a member state’s GDP), budget deficit (no larger than 3% of a member state’s GDP), inflation rate (no higher than 1.5% compared to the unweighted arithmetic average of the harmonized inflation rate in the three member states having the lowest harmonized inflation) and stability of the exchange rate and the yields on the 10-year government bonds in the past 12 months.
As deficits in Greece and other member states (Spain, Ireland) grew to extremely high levels, EU policy makers requested the implementation of a set of strict deflationary policies in those countries. Also known as ”corective policies”, they required considerable austerity measures and notably higher taxes. Such policies were not once regarded by economic experts as nothing more, but a vehicle towards economic depression and social disorder. These experts were also proponents of the idea of an orderly default on a portion of the Greek public debt, an exit from the Euro zone and a return to the drachma. Such an act would have severe effects on local economy at first, which were likely to be neutralized in a longer run.
Institute of Directors (IoD) Survey
However, at present, the prevalent opinions among leaders of various businesses do not envision an orderly Greek default. A survey, encompassing business leaders in the UK and conducted by the Institute of Directors, concluded that 62% of respondents believe the most possible result by the ”Grexit” would be a ”messy default and exit which negatively affects financial markets and leads to pressure on other Euro members”, while 45% of respondents saw a possibility of ”more widespread runs on southern European banks”. Almost half of the participants in the survey supposed that the Greek exit from the Euro group, to a large extent, may be followed by other countries.
26% of respondents believed that Greece is ”very likely” to withdraw from the Euro zone during the upcoming 12 months and another 47% suggested that a ”Grexit” is ”somewhat likely” in that period. On the other hand, only 2% of business leaders surveyed said a withdrawal from the Euro area is ”very unlikely”.
GDP consequences
The ratings agency Standard and Poor’s (S&P) warned that a potential exit from the Euro zone could lead to a 20% decline in the Greek real Gross Domestic Product during the next four years. In addition, the depreciation of the drachma against the euro would lead to a tremendous surge in the country’s euro-denominated public and private debt, which would further sharpen the situation.
Another potential risk of the ”Grexit” would be the severe hit on equity markets and the significant increase in government bond yields. This could hurt fiscally vulnerable member states such as Portugal, Italy and Spain.
The Referendum
The Greek bailout referendum, scheduled to be hold on July 5th (Sunday) is seen as an event, which could provide some clarity on the Grexit matter. The referendum is to decide if the bailout conditions, offered by the European Central Bank, the European Commission and the International Monetary Fund on June 25th 2015, will be accepted by the Greek population. A possible ”No” vote could pre-empt the country’s withdrawal from the Euro area.
During a parliamentary committee, the Eurogroup president and Dutch Minister of Finance, Jeroen Dijsselbloem, warned that a ”No” vote could put an end to negotiations between Greece and its creditors. “If people say they don’t want the creditors’ reform package, there is not only no basis for a new programme, there is also no basis for Greece in the Eurozone”, he said.
On the other hand, on July 2nd Greek finance minister, Yanis Varoufakis, said in a Bloomberg TV interview he will submit his resignation, in case the result from the Sunday referendum is a “Yes”.
Betting on the Grexit
The upcoming referendum and the imposed capital controls in Greece seem to have put a number of bookmakers in an extremely difficult position, when it comes to estimating the odds of a Greek withdrawal. As the situation has become quite unpredictable, William Hill announced it will no longer allow bets on the Grexit.
“In such a volatile situation in which events can move very quickly it is very difficult to be confident that our odds are accurate. The only option people have been wanting to back for the past couple of days is that Grexit will happen this year and as we can no longer hope to balance our market, we have decided to pull the plug”, Graham Sharpe, a spokesman from the bookmaker said, cited by Business Insider.
The prevalent bets have been in favor of the Grexit so far in 2015, according to bookmakers. Before William Hill disallowed these bets, it offered odds of 3 to 1, that Greece will part ways with the Euro zone during the current year. In that case, a gambler would have earned GBP 3.00 for every GBP 1.00 he/she had placed as a bet.
On the other hand, one of the leading companies in online betting within the European Union, Paddy Power Plc, propose odds of 4 to 9 that Greece will not leave the Euro zone in 2015. The bookmaker’s odds of a Grexit are currently set at 11 to 8. The latter reflect a 57% probability that Greece will exit this year.
In the mean time, betting at Ladbrokes has focused mainly on the upcoming referendum. The odds are set at 4 to 7 that the result will be a ”Yes”, and 5 to 4 that the bailout conditions will be rejected by the Greek voters. Odds of 5 to 4 represent a 55% chance that a Greece may come a step closer to making an exit from the common currency zone.
