Greece: The possibility of a Grexit remains low

Personally, I do not believe that Grexit may happen (do you?), but in general how good is the EU, eurozone prepared for perhaps some turbulent times after the Greek elections, especially if Syriza wins? Read few comments.

Erik JonesProfessor of European Studies, Director, Bologna Institute for Policy Research, Paul H. Nitze School of Advanced International Studies (SAIS), Bologna Center, The Johns Hopkins University

Like you, I think a Greek exit from the euro is unlikely.  The problem is that the euro is becoming a tougher place to stay inside.  The Governing Council’s policy on collateral, as Benoit Coeure explained it recent to the Irish Times, is that sub-investment grade assets are only eligible if the country is in a program.  That means that Greece must stay in the EU/IMF program for Greek banks to continue to be able to use Greek sovereign debt as collateral for routine liquidity operations.  If Greece were to leave the program, then Greeksovereign debt would no longer be eligible as collateral and the Greek banking system would have to rely on emergency liquidity assistance (ELA).  We just saw the Governing Council authorize ELA for two of the larger Greek banks (Alphabank and Europa Bank).  But the agreement is only for two weeks and we know from Cyprus that it can be taken away.  If the Greek central bank were forced to choose – as Cyprus did – between saving the banks and staying in the euro, it would be a very tense situation.  Hopefully we will not have to come to that sort of impasse.

The European economy is going to head into a period of turbulence for which it is not well prepared politically.  The populist and anti-Europe movements are going to benefit a lot from the current uncertainty.  Fortunately, the economic climate is improving slightly with the sharp depreciation of the euro, the continued accommodative monetary stance, and the fall in energy prices.  This is not enough to lift Europe out of its doldrums but it would be worse if the currency were to strengthen and oil prices were to rise.

Miguel Otero-Iglesias, Senior Analyst, Elcano Royal Institute

Yes, you are right. I don’t see Grexit happening. Noone in Greece wants, and noone in Europe, not even in Germany. Perhaps the Finns will want to see this but they are too small to matter.

AS for the instability. As always, difficult to predict but the base scenario is that the firebreaks are stronger than in 2012. But they are not strong enough to avoid contagion if Brexit is looming. So it all depends how the negotiations beween Syriza (if it wins) and the Troika go. My sense is that Syriza will moderate and that there will be a new MoU very close from the one we have now but with certain concessions from the Troika.

Fabian ZuleegChief Economist, European Policy Centre


The possibility of a Grexit remains low, not only because it would impose significant costs on both Greece and the rest of the Eurozone (with potential global knock-on effects), but also because there are no convincing scenarios of how the transition could be managed. However, in case of a Syriza victory, there is likely to be some uncertainty about the future direction, in part depending on what kind of coalition would be created, which would result in turbulences in the markets. The level of preparation for this has been low, as the political feasibility of the current reform path has been overestimated and there is a hope that, in the end, Greeks will not go down this route. The EU should have tackled the issue of excessive public debt in Greece long before the current political crisis by rescheduling and some debt forgiveness, rather than entering a potential political conflict which is costly for all sides, financially and politically.

Patrick Leblond, Assistant Professor, Graduate School of Public and International Affairs, University of Ottawa

I do not think that there will be a Grexit, which in my mind would be catastrophic for Greece. As I have said on other occasions: if the Greeks think that they have experienced austerity so far, a Grexit would make the last years look like a joy ride. IIt seems to me that most reasonable people (a majority) in Greece understand this. I think that the fact that Tsipras spoke in favour of a Grexit before the last elections hurt his party at the polls. It also explains Tsipras has been trying to present himself as a reasonable left-wing leader since then; his op-ed in yesterday’s FT is testimony to that. How he will be able to act differently than the current coalition is not evident but he has been clear that he has no intention of taking Greece out of the eurozone and the EU. If he makes it to power, he will have to negotiate with the Troika anyway since the EU and the ECB are paying for Greece’s current deficit and will continue to do so as Greece’s return to the markets will be postponed until sovereign bond investors feel confident that Tsipras and Syriza can manage Greece effectively and reasonably, a bit like when Lula came to power in Brazil.

As for how the euro and the EU can deal with turbulent times following the elections, I think that they can. The fact that most of Greek’s sovereign debt is no longer held by the private sector makes this much easier, meaning that market rates do not really matter just like they did not once the Greek Loan Facility was put into place. More specifically, the ECB and the European Stability Mechanism can deal with turbulence in Greece, something that they could not really do in 2010 (e.g., the ESM did not exist). Even the ECB’s QE can come in handy for dealing with such turbulence. The ECB’s timing certainly does not seem to be just a coincidence.



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