There has been mounting speculation that Greece's economic woes will cause a breakup in the eurozone, the group of countries that share the euro as their currency. Like elections and sporting events, the online markets allow people to place bets on the likelihood that this will happen, giving us a means of predicting the odds.
Presently, the markets place an 83 percent likelihood on the odds that a country leaves the eurozone by 2015, adopting its own currency instead. Greece is the most likely country to cause this breakup, with Italy ranking a distant second:
The reason observers are so confident that Greece will leave the eurozone is easy to explain.
The European Union and the International Monetary Fund have demanded that Greece adopt severe austerity measures as a condition for staying in the eurozone. The current government has implemented them, a move that correlates with Greece moving ever deeper into recession. Unemployment in the country is edging above 20 percent. Now more than a quarter of Greeks consider themselves "suffering."
According to the latest rumors, Greece will hold a parliamentary election in May. The current government, a coalition between the Socialist Movement and the conservative New Democracy party, is likely to lose its majority given such widespread displeasure with its policies. The coalition parties are expected to loose nearly half of their seats, giving them 47 percent, down from 84 percent of the parliament.
As no other party supports the austerity plan, forecasters are skeptical that any new Greek coalition will stick to further painful spending cuts and reforms after the election. Thus, the new coalition is likely to either pull out of the eurozone or be kicked out.
If Greece is overwhelmingly likely to vote for a new coalition that will force the country off the euro, why do the markets predict just a 41 percent chance that they will abandon the euro this year? The reason is probably that there is no formal mechanism that would enable eurozone members to leave the group. Moreover, various analysts have pointed out that it is hard for logistical reasons for any country to leave the euro. The difference in those odds is a reflection of the logistical reality, not just the political reality. The beauty of markets is that they can consider both.
Source: VPRC, OddsChecker, PaddyPower, StanJames, WilliamHill
Florian Teschner is a Ph.D. candidate at Karlsruhe Institute of Technology in Germany.
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