Dallara warned that those who believe the effects of Greece leaving the eurozone and defaulting on its debt could be managed are mistaken. “A Greek exit is so unlikely to be well-managed, so likely to be disorderly that it will pose a threat to financial institutions around the world but more fundamentally not just to financial institutions but to the global economy,” he said. “I think it could well precipitate another global recession the likes of which we are still trying to crawl out from and that’s why at the end of the day cooler heads may prevail here.”
Dallara, who was the key negotiator for private investors in Greece’s recent debt restructuring scheme (PSI), also played down concerns over whether Greece would pay a 450-million-euro foreign law bond that is due on Tuesday. “The payment due this week is a rather different development because it is part of the few earlier Greek loans that has not been restructured as part of the voluntary deal we negotiated because it’s being held by certain financial institutions that are holding out for better terms,” he said.
Dallara advocated that the eurozone uses this crucial moment in the Greek crisis to rethink its strategy for tackling the problem. “I think the more fundamental issue is whether Greece is able or not to do enough to secure continued support by the eurozone. I think this presents an opportunity for the eurozone leadership to step back and ask whether their approach to Greece and more generally their approach to other struggling countries in Europe needs some substantial revision: less focus on short-term budget cutting, more focus on long-term budget discipline and structural reform and greater financial support by Europe.”
Dallara also expressed hope that Greece’s political instability would soon come to an end and that a new government would be able to negotiate with the EU and IMF. “I don’t think we should be ready yet to give up on the prospect that Greece with benefit of another election may find new leadership and that leadership may decide to work with the leadership of Europe if there is pragmatism on both sides,” he said.
“It’s important to keep in mind that a Greece exit from the eurozone is most likely going to lead to Greek default, not just to private creditors but to the bulk of those creditors which are the official institutions of Europe and multilateral institutions such as the IMF. This could have very severe consequences because Greek exposure to the ECB is well over the ECB capital. At the eleventh hour there may be a desire on the part of Greek authorities and the eurozone to find some common ground.”