IMD International

Will Greece default and leave the euro?

IMD Professors React about the looming deadline in Greece's bailout program

June 19, 2015

Greece's European bailout program expires on June 30th. Many European leaders are claiming that if a deal is not struck in the coming days that Greece will default on its loans and will have to leave the eurozone.

We caught up with some IMD faculty members and asked whether or not they think Greece will default and head to the "Grexit":

Dominique Turpin, IMD President
Turpin_VIS5"It's in nobody's interest for Greece to default. It would create major problems for the Greeks as well as for all Europeans.

For me, it's a pure game of negotiations. We have to expect delays in reaching agreements but at the end both parties know what is at stake and I am fairly optimistic about the outcome."

Salvatore Cantale
, Professor of Finance

Cantale_VIS5"In my heart I really hope Greece doesn't default and leave the euro. It would cause a lot of pain for the Greeks and dash a lot of real people's hopes and dreams in the country. It would be a careless move on the part of the country's leadership. That said, the current government does have the support of its citizens.

I think the importance of this to Europe is overestimated. Greece doesn't even represent 2% of GDP but it takes up 95% of the talk.

Also, as an academic I would be curious to see what would happen if a Grexit did happen. These are truly unique circumstances."

Carlos Braga, International Political Economy and Director of the Evian Group
Carlos-Braga"As I said in March, what has been accomplished so far is just to 'kick the can down the road'.

Time is running out and to the extent that the Greek government has not been able to improve its relations vis-à-vis its creditors in the last few months, it is difficult to envisage a solution that could be implemented in the next few weeks.

The Greek tragedy is that exactly when the economy was showing the first signs of recovery, the new government came into power and adopted a confrontational strategy that heightened uncertainty, contributing to a loss of confidence and speculative behavior by economic agents.

In theory, one could imagine a package encompassing a more modest fiscal adjustment in 2015 and a commitment by creditors to revisit debt restructuring in the medium-term in exchange for the continuation of needed structural reforms in Greece (e.g., pension reform).

In practice, the political reality in both camps does not favor a rational solution at this stage. Market forces will soon force the hands of policy-makers and the outcome will be particularly painful for Greek society."

Nuno Fernandes, Professor of Finance and Director of Strategic Finance
Fernandes_VIS5"The European Commission and the European Central Bank are largely responsible for the current Greek crisis. When the situation began making waves in 2010, it could have been stopped in its tracks more easily than today.

Instead of tackling the issue then, what the EC and ECB have allowed was effectively the bailing out of banks from Northern European countries which were sizable investors in Greek debt at the time.

It would seem that today most of the Greek debt is domestic and contagion problems are smaller. But from a practical point of view, this is not true. A Grexit would mean the end of the EU as we know it. Besides of course a catastrophic economic crisis in Greece, it would have significant spill-over effects. Greece would maybe even leave NATO. This could turn into Europe's Cuban missile Crisis."

Many of these professors will all be teaching at Orchestrating Winning Performance (OWP), a unique global business program taking place next week at IMD from June 21-26, 2015.

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