Buiter foresees tasty fudge on Greek debt

Willem Buiter, global chief economist at US behemoth Citi, is credited with coining the term Grexit, but he has a fairly mixed record when it comes to predicting its likelihood.

He famously stuck his neck out in 2012, saying there was a 90 per cent chance the Greeks would be gone from the euro zone by January 2013. They weren't but, in Buiter's defence, it has to be noted that Mario Draghi made his decisive intervention, promising to do what ever it took to save the euro, in the interim.

Buiter, who was in Dublin yesterday, offered an additional explanation: he underestimated the Greek people’s ability to endure suffering and the twin issue of the ability of at least some Greeks to emigrate .

Revolutions need angry young men, and many of them left Greece. "The potential Karl Marxes of Greece ended up working for banks in Berlin," was his wry comment.

Buiter is altogether more sanguine this time round. The risk of Grexit is still material but the most probable outcome is another European fudge.

The shape this is most likely to take is that of an effective conversion of at least some Greek debt into some sort of zero-coupon perpetual bonds. This reduces the Greek debt in real terms but avoids the balance-sheet write-offs that European central banks’s fear.

The question is what Greece can give in return to get the Nordic core – Germany and its allies – to agree to yet another bending of the rules. Not much, he argues, outside of taking on the powerful individuals that control much of the Greek economy. It will be quite a tasty fudge.