According to former CEO of PIMCO, Mohamed El-Erian, Greece is heading for a “massive economic contraction” and will likely be forced out of the euro zone.
On Sunday, Greece imposed capital controls, shut its banks, and closed its stock markets until further notice to avert a collapse of its financial system following Greek Prime Minister Alexis Tsipras’s shock announcement late on Friday night of a July 5 referendum on austerity measures demanded by the country’s creditors.
“There’s an 85 percent probability that Greece will be forced to leave the euro zone” in the next few weeks, El-Erian told Bloomberg during an interview from New York. “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 euro zone very difficult for Greece.”
The euro plunged at one point over 1.50 percent and Treasuries surged the most since 2013 as the collapse of Greek rescue talks battered global markets.
El-Erian said that the lack of trust on both sides now makes it extremely difficult to see how there can be any kind of agreement that would resolve the impasse.