The group now believes there is a 90% chance of the Greeks leaving the Euro up from their previous estimates of 50% to 70%. The bank also believes that Spain and Italy will soon request a formal bailout from the International monetary fund and European Union.
The report was sent by an email to the banks workers saying; ‘Within this subpar global outlook, we remain gloomy on the euro crisis. Our base case 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.
We now believe the probability that Greece will leave EMU in the next 12-18 months is about 90pc, up from our previous 50-75pc estimate, and believe the most likely date is in the next 2-3 quarters. As before, for the sake of argument, we assume that “Grexit” occurs on 1 January 2013, but we stress this is an assumption rather than a forecast of the precise date.
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.We remain gloomy on the euro crisis. Over the next few years, the euro area end-game is likely to be a mix of EMU exit (Greece), a significant amount of sovereign debt and bank debt restructuring (Portugal, Ireland and, eventually, perhaps Italy, Spain and Cyprus) with only limited fiscal burden-sharing.”
Citi also predicts further credit rating cuts to a number of countries such as Austria, Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. They are also predicting that Japan and the U.S will also have their ratings cut by one notch and that the UK will lose its triple-A rating due to the nation’s economic troubles.
The Pound to Euro exchange rate is currently trading at 1.276
The Pound to US Dollar exchange rate is currently trading at 1.548
The Pound to Australian Dollar exchange rate is currently trading at 1.498
The Euro to US Dollar exchange rate is currently trading at 1.213
The Euro to Pound exchange rate is currently trading at 0.783
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