'No Question Greece Will Default': Economist
Special to CNBC.com
Greece will default, U.S. economist Martin Feldstein told CNBC Wednesday, and it might be good for the country to leave the European Union.
"Somebody may write the check so that they get past the deadline, but there is no question Greece is going to default," Feldstein said, referring to the Oct 23. meeting of European leaders in Brussels trying to come up with a solution to the euro-zone crisis.
The troubled nation has too much stacked against it including a debt-to-gross-domestic-product ratio of 150 percent, double-digit unemployment, and "GDP falling at a very fast pace," said the Harvard professor and president emeritus of the National Bureau of Economic Research.
"I think if they could [leave the European Union] without being punished by the rest of the EU members, that would be a good thing for them," he said of Greece.
Greece is in the midst of violent demonstrations and a two-day strike that has shut down the nation. Feldstein said there is not enough money in the European Financial Stability Facility to be able to stop Greece's economic problems from spreading to other troubled European nations.
"The EFSF is big enough for Greece but it’s not big enough for Italy or big enough for Spain," he said. "So that won’t do it. What they’re talking about in terms of recapitalizing the banks is telling the banks that they better go to the capital markets first. If they don’t make it, well, then they can look to their national banks...If that doesn’t work, well, then who knows?"
The U.S. "will be adversely affected by a significant slowdown in Europe," but U.S. banks have been able to limit their European exposure.
The U.S. economy is a different manner. While third-quarter figures show some growth compared with the first half of the year, that was because "July was a good month and September not too bad. August was awful," Feldstein said. 'Looking ahead, I think the fourth quarter is not going to be as good as the third quarter" and the risk of recession remains.