Mohamed El-Erian: Grexit 'high probability'

There's a "high probability" of a Greece exit from the euro zone, Mohamed El-Erian said Monday, a day after Greek voters rejected the bailout terms of creditors in a national referendum.

The economy there is grinding to a halt, said El-Erian, chief economic adviser at Germany's financial services giant Allianz. "What's happening on the ground means the situation is slipping out of the control of the politicians. I don't think that's being factored in enough."

In a surprise move, Yanis Varoufakis, the fiery Greek finance minister, resigned on Monday, in what's seen as a concession to lenders despite his anti-austerity victory.

Varoufakis said he wanted to give Prime Minister Alexis Tsipras a "fresh start" in reforms talks, which could decide whether Greece stays in the single euro currency.

"The euro zone controls its own destiny. The euro zone has instruments to limit contagion. They haven't been deployed yet," said El-Erian, former co-CEO of Pimco.

"What's happening on the ground means the situation is slipping out of the control of the politicians." -Mohamed El-Erian, Allianz chief economic adviser

Should there be a Grexit, he said, "I'm not worried about the economic contagion. I'm not worried about the financial contagion. What I am worried about is ... the shock to risk appetite."

The notion of a Greek "sabbatical" from the euro—a temporary reversion to a local currency until the economy stabilizes—is a tougher sell now than it was a few years ago, said El-Erian.

Harvard professor Marty Feldstein, former chairman of the Council of Economic Advisers under President Ronald Reagan, told CNBC he supports a Greek "leave of absence" from the euro.

Under this scenario, "they're not being thrown out of the euro zone; certainly they are not being denied the privileges [and] the rights of being a member of the European Union, the trading rights and the labor market rights," he added.

Earlier, Ewald Nowotny, a member of the European Central Bank's governing council, told CNBC the euro nations all have an interest in keeping Greece in the single currency.

Ewald Nowotny
Martin Schalk | Bloomberg | Getty Images
Ewald Nowotny

"But of course, we know this means that a number of actions have to be taken," he said. "Tomorrow will be an EU summit," where Greece's application for a new bailout will be discussed.

When asked about whether he's optimistic that Greece can remain in the euro, the Austrian central bank governor told CNBC's "Squawk Box" that it's not a matter of being optimistic, but a matter of being "realistic."

Nowotny said Varoufakis' resignation won't help or hurt the negotiations because the issues are not about personalities but about economic conditions, which haven't changed since Sunday's vote.

The ECB was set to decide on further emergency funding for Greek banks, which have been closed now for a week under capital controls designed to prevent a banking system collapse.

"What we have to look at what is our room to maneuver according to the legal situation we are in," said Nowotny. "I think this has to be clearly distinguished from the political aspect that has to be dealt with by the heads of state and the finance ministers."

Protesters wave Greek and EU flags during a pro-euro rally in front of the Parliament building, in Athens, on June 30, 2015.
Yannis Behrakis | Reuters
Protesters wave Greek and EU flags during a pro-euro rally in front of the Parliament building, in Athens, on June 30, 2015.

Thomas Wieser, president of the Euro Working Group, which prepares decisions at meetings of the euro zone's finance ministers, said the situation in Greece is deteriorating. A quick solution that Tsipras promised voters is "not very realistic," he said.

"This is clear, the clock is ticking," Wieser told CNBC Monday. "Ten days ago, Greece was a country with banks open and a certain degree of confidence that they would get a further bailout commitment."

"[But] as we are speaking today, the tourism season looks bad, the financial sector is closed down ... with capital controls. We need to move, and I think the Greece side needs to move as fast as possible," Wieser continued. "There will be very, very difficult discussions."

"If the governments of Europe choose to break up the euro zone on their own, that will be on their responsibility." -James Galbraith, University of Texas at Austin professor

James Galbraith—professor at the University of Texas at Austin and friend of Varoufakis—told CNBC: "The elements of a reasonable deal are spelled out. They were there on Wednesday in a letter from the prime minister to the European partners."

"If the governments of Europe choose to break up the euro zone on their own, that will be on their responsibility," he said. "But it is not something which either the Greek government or the Greek people want."

The leftist Greek government is committed to long-term structural reforms, including improving the tax system, he said. "But what the creditors have been asking for are flat cuts in pensions."

Greece has already endured more austerity than any other country in the euro zone, Galbraith said, which resulted in a 25 percent decline in economic growth, "These supposedly pro-growth reforms ... have produced the exact opposite, a gigantic depression."

James Galbraith's father was the famous economist, John Kenneth Galbraith.

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