Citigroup Inc. said there's now a 90 percent chance that Greecewill leave the euro in the next 12 to 18 months, with prolongedeconomic weakness and spillover for the currency bloc.

In an analyst note, Citigroup updated its forecast for a Greekexit from the 17-nation currency union from a previous estimate of50 percent to 75 percent, and said it would most likely happen inthe next two to three quarters. Specifically, the bank assumes aGreece exit would occur on Jan. 1, 2013, while saying that is not aforecast of a precise date.

Greece's so-called troika of international creditors, theEuropean Central Bank, the European Commission and theInternational Monetary Fund, are in Athens this week amid doubt thecountry will meet its bailout targets and reluctance among Germanyand other euro-area states to put up more funds should Greece failto do so.

“Before the Greek election, the troika members were willing tobe patient, while Greece slipped off-program in expectation thatthe election might produce a government that was able and willingto get the programme back on track,” Michael Saunders, chiefwestern European economist at Citigroup, in London said in thenote. “It is now fairly clear that these hopes have not beenfulfilled.”

Worsening turmoil in Spain and Italy may make Europeanpoliticians less willing to give further help to a country thatkeeps on missing its targets, Citigroup said. Citigroup said thateven with the Spanish bank rescue, both Spain and Italy are“likely” to need some form of full bailout by the end of 2012.

Yields on Spain's two-, five-, 10- and 30-year governmentsecurities climbed to euro-era highs this week, with the 10-yearbond returning as much as 7.69 percent on July 22. The extra yieldthat investors demand to hold Italian 10-year bonds over Germanbunds on July 24 rose to the highest since Prime Minister PrimeMinister Mario Monti took power on Nov. 16.

“Our base case is for prolonged economic weakness and financialmarket strains in periphery countries, spilling over into renewedrecession for the euro area as a whole this year and the next,” theCitigroup note said.

In Greece, Prime Minister Antonis Samaras meets EuropeanCommission President Jose Manuel Barroso at 5:30 p.m. local timetoday. The country risks running out of money without thedisbursement of a 4.2 billion-euro payment ($5.1 billion) that wasdue in June as the first part of a 31 billion-euro transfer.

Policy makers are now talking openly about the possibility thatthe country will need another bond restructuring. EvangelosVenizelos, leader of Greece's Pasok party, said July 7 that awrite-down of bonds held by the ECB should be one of the steps tofurther cut the country's public debt.

“There still looks to be a considerable, and probablyunbridgeable, gap between the reform measures and fiscalimprovements insisted upon by the creditors and those that arepolitically and economically achievable in Greece,” saidCitigroup.

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