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Would a Greek Euro Exit Be Catastrophic?

Monday, 11 Jun 2012 | 8:54 PM ET
Euro bills and coins
AP
Euro bills and coins

All eyes are on Greece as it approaches its June 17 election, with the largest looming question being whether it will exit the euro.

“We really have to await the result of the elections six days from now in Greece to find out the answer to that, but I doubt it seriously,” Institute of International Finance Managing Director Charles Dallara said Monday on CNBC’s “The Kudlow Report.”

“Even the most radical leaders in Greece today do not speak of leaving the euro zone, and I think many northern European leaders who were earlier flirting with that idea as an attractive option, to be rid of the Greek problems, are now recognizing that Greece staying in the euro zone is the best prospect to at least to help stabilize Europe,” he added.

Although Greece exiting the euro zone was unlikely, Dallara said it would be bad news for everyone.

The Greek Tragedy
Anticipation for the Greek's upcoming election looms over the markets. CNBC's Simon Hobbs; Charles Dallara, Institute of International Finance and House Representative Cathy McMorris Rodgers (R), discuss the fight to fix Europe.

“Greece itself would go through a period of hyperinflation.”

And the woes would almost certainly spread.

“I think it would put us back in a global recession,” he said, adding that it could lead to a worldwide depression as the European Central Bank would be “immediately almost insolvent.”

“We know how contagion moves,” he said.

U.S. Rep. Cathy McMorris Rodgers, R-Wash., took a harsher view toward Europe.

She suggested that instead of increasing loans to troubled European economies, such as loans to Spain of up to 100 billion euros ($125 billion), the purse strings should be tightened to help them by creating incentive “to start balancing their budget, stopping the bailouts in Europe.”

McMorris Rodgers clarified that she did not think the United States should pull out of the International Monetary Fund, but that a separate $100 billion in loan guarantees would hurt more than help.

“There’s been a real lack of accountability and communication,” she said. “It’s really been a blank check for the Obama administration.”

Tune in:

"The Kudlow Report" airs weeknights at 7 p.m. ET.

Questions? Comments, send your emails to: lkudlow@kudlow.com

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  • Lawrence Kudlow is a CNBC senior contributor. Previously, Kudlow was anchor of CNBC's prime-time program "The Kudlow Report"