Greece could be close to a Eurozone exit, experts say — caveviews.blogs.com

As the tide turns in Europe and voters reject austerity. the possibility of a Greek Eurozone exit has taken real proportions once again. The rise of the Greek far-left, with Alexis Tsipras of the Syriza party now trying to build a government based on the rejection of Troika-imposed austerity and structural reform, has been the main catalyst.

An ECB board member, Fitch Ratings’ CEO, and the head of an important hedge fund have all publicly accepted a Greek exit as possible, while Citi reportedly raised its probability that the Hellenic Republic leaves the Eurozone by 2013 to 75%. The ball, it seems, is already rolling.

“Greece must [understand] that it agreed to a [bailout package], [and that there] is no alternative if it wants to remain a member of the Eurozone” said ECB board member Joerg Asmussen to German business daily Handelsblatt on Tuesday.

His comments were echoed by Fitch Ratings’ president and CEO, Paul Taylor, who said “a Greek exit does not mean the end of the euro,” as Germany has a “fundamental interest in preserving the common currency,” in an interview with Der Spiegel . picked up by ZeroHedge .

Both Asumussen and Taylor were indirectly responding to the man who is currently running the show in Greece. Alexis Tsipras. The head of a far-left coalition named Syriza, Tsipras came in second in Greece’s parliamentary elections, held on Sunday, with 16.8% of the vote (compared with 18.89% for Sunday’s winner, Antonis Samaras of the New Democracy party).

Tsipras has said that the people of Greece voted for him to repeal the bailout package, under which the country must engage in aggressive spending cuts, lay-off thousands of civil servants, and privatize many of its state-owned assets, among other things, in order to receive bailout money from the ECB, the European Commission, and the IMF (collectively known as the troika).

Interestingly, Tsipras also warned Eurozone leaders to stop “blackmailing” Greece with threats of a loss of EU membership. “This crisis isn’t just Greek, it’s European […], there will either be a collective, sustainable and fair European solution to the public debt issue or it will collectively fall apart,” he said. adding that the a Greek exit would destroy the euro.

While the common currency has been unexpectedly resilient in the face of the severe sovereign debt crisis in Europe, many fear further it should eventually fall. Nomura’s analysts note they expect the euro to trade between 1.26 to 1.28 versus the U.S. dollar over the short-term, confirming the definite break below 1.30 seen on Monday and repeated on Tuesday.

Fitch’s Taylor disagrees, though. The “fundamental interest” that Germany has in preserving the common currency is that it allows it to sell its goods at a lower price, he explained. Re-instituting the Deutsche mark would give Germany an even stronger currency, hurting the Bavarian nation’s “growth engine,” its export sector. Taylor suggests that a Greek, or any other Eurozone exit, would lead to a stronger euro, not weaker, as Tsipras warned. Germany has also gained from the common markets that the euro, as a single currency, provided, selling its goods across Europe, including to Greece and other distressed nations.

Still, some believe a Greek exit is inevitable. Citi’s analysts said the risk of Greece leaving the Eurozone by the end of 2013 has risen to 75%, according to Bloomberg . The same news outlet reported that hedge funder John Taylor, founder and CEO of FX Concepts, believes the chance of risk being out of the monetary union this summer “is very likely.” “I think that people are feeling the implications of a Greek exit aren’t so bad,” he added. Others, like economist Nouriel Roubini have also suggested that Greek should leave.

As I’ve previously reported, analysts at UBS suggest the cost of leaving the Eurozone is higher than the benefits. Any advantages gained from currency devaluation would be offset by trade tariffs, while Greece’s banking sector would collapse and its economy would fall deeper into recession, they argued (read Greek Euro Exit: 60% Currency Devaluation, Default, Banking Sector Collapse ).

The effect wouldn’t be isolated. Expect contagion, possibly to Portugal and even beyond, to Spain and Italy. It would possibly affect major U.S. banks as well, like JPMorgan. Goldman Sachs. and Morgan Stanley. A Greek Euro exit would rattle global markets, at least in the immediate term. Whether global markets can digest it, though, no one knows.