Solomon said that various financial institutions put the probability of Greece leaving the eurozone – known as Grexit – anywhere from 1 in 3 to 85%.
“My current best estimate is still that a Grexit won’t happen given that it’s not really desired by most Greek voters and the ECB is likely to maintain its funding of Greek banks to minimise the risk of financial contagion to other eurozone countries,” he told FoodNavigator.
However, he added that it was hard to predict the chaos of the Greek financial system, the attitude of key politicians, including Angela Merkel, and the actions of Tsipras.
Prime Minister Alexis Tsipras has announced a snap referendum on whether Greece should accept its creditors’ most recent proposal, after negotiations broke down over the weekend. If it does not, EU leaders have warned that Greece would have to leave the eurozone, but Tsipras has urged voters to reject the proposal, while also saying he wants Greece to remain in the eurozone.
For European food and drink companies, those sourcing ingredients and products from Greece would likely find them cheaper if it left the eurozone, and this could trigger an export boom. But if financial contagion spreads to the rest of Europe, devaluing the euro, this could dampen demand and lead buyers to doubt whether Greek exporters could deliver, causing exports to decline.
In a blog post on the Euromonitor website, Solomon outlined three possible scenarios if Greece defaults on its debt: A default while remaining in the eurozone; Grexit with an export boom; and Grexit leading to depression. However, Solomon underlined that given current polls, he thought it was “slightly more likely that Greece ends up avoiding a full default”, even though it is expected to default on a €1.6bn payment owed to the International Monetary Fund this evening.
“In general, a Greek default is likely to be messy and lead Greece into a recession over 2015-2016,” he said.
If Greece defaults but stays in the eurozone, the scale of the recession could be limited to 0.5%-1.5% in 2015, he predicted, and further to 1%-2% in 2016, before returning to growth in 2017.
In a worse-case scenario, Grexit could lead Greece’s GDP to decline 4-6% in 2015, and by 10%-14% in 2016, Solomon said.
FoodDrinkEurope declined to comment on what a Greek exit from the EU might mean for its members, but added: “Of course we are in favour of keeping the EU as it stands.”