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Greenspan: The 'almost certain' Greece default could cause US double-dip

A default by Greece could drive the US back into recession, according to the former Federal Reserve chairman Alan Greenspan.

By by Nyree Stewart | Published Jun 17, 2011 | comments

In an interview with Bloomberg Mr Greenspan said the "chances of Greece not defaulting are very small".

His comments came as Greece’s prime minister George Papandreou's failed to win support for more austerity measures to help address its debt problems.

Mr Greenspan told Bloomberg the chances of Greece defaulting are now "so high that you almost have to say there’s no way out," which could put pressure on some US banks.

He argued Greece's debt crisis had the potential to push the US into another recession, as without it the probability of a recession "is quite low".

"There's no momentum in the system that suggests to me that we are about to go into a double-dip," he said. Mr Greenspan said the US's debt issue is becoming "horrendously dangerous" and said that he doubts lawmakers have another year or two to solve it.

He added that the US recovery is being hindered by apprehension among businesses over the long term outlook, and claimed there is nothing more for the Fed policymakers to do.

His comments come as traders feared Greece could become Europe's "Lehman's moment".

Neil Mackinnon, an economist at VTB Capital in London and a former Treasury official, told the Daily Telegraph: "The probability of a eurozone Lehman moment is increasing. The markets have moved from simply pricing in a high probability of a Greek debt default to looking at a scenario of it becoming disorderly and of contagion spreading to other economies like Portugal, like Ireland, and maybe Spain, Italy and Belgium."

Mr Greenspan was once credited as "the greatest central banker who ever lived" but has since been blamed for contributing to the US financial crisis by keeping interest rates low for too long. Mr Greenspan founded consulting firm Greenspan Associates after leaving the Federal Reserve.

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