Greece to Default But Not Leave Euro Zone?

    That's the word according to the Fitch credit ratings agency today. Greece though is being pushed to implement fiscal reforms with the EU claiming it could run out of money within weeks.

    In itself this may not be such a bad thing so long as Greece doesn't leave the EU as Fitch doesn't believe it will. Still would like to hear some more talk about the debt restructuring that the Economist recommended in this week's edition.

    The concern about Greece is the idea of "contagion" that this could spook investors who will then hit Italy and Spain as their benchmark bonds have remained high despite austerity measures and regular ECB purchases in the bond market over the past month.

    "Standard & Poor's, another ratings agency, cut Italy's credit ratings on Monday, pushing the Italian yield spread over Germany wider."

     http://www.cnbc.com/id/44592568

    Along with today's Fitch view we do have a contrary view out of a guy with a reputation for being contrarian-and often being right-Nouriel Roubini. He argues that Greece should not only default-on this he and Fitch agree-they should quit the euro.

    http://www.cnbc.com/id/44590461

    But this is in contradiction to Fitch who believes that concerns over Greece leaving the euro are "overblown."

   Roubini argues that in fact Greece has gotten a pretty shabby deal from the EU with very little real debt relief. If you take into account the large sweetners given to creditors the real debt relief is close to zero.

   "The major problem, in Roubini's view, is a lack of growth and competitiveness, which can only be overcome by currency depreciation."

   "A return to a national currency and a sharp depreciation would quickly restore growth and competitiveness, as it did in Argentina and many other emerging markets that abandoned their currency pegs," he said.

     The first year hit for Greece would be truly stomach churning, according to a study done by UBS it would lose 40 to 50 percent of it's GDP the first year.

     Nevertheless he argues that as in the case of Argentina which did very well in subsequent years of returning to the peso this will serve both Greece and Europe.

     "Via nominal and real depreciation, the exit path will restore growth right away, avoiding a decade-long depression," said Roubini who warns that contagion for countries such as Italy and Spain is already a reality, and requires liquidity support from the European Central Bank or the European Financial Stability Fund.

     Note Roubini also differs from Fitch-and others-in saying that contagion for Italy and Spain is already a reality and require liquidity support from the ECB.