Specter of ‘Grexit’ re­turns, but the eu­ro­zone is in bet­ter shape: an­a­lysts

The China Post - - COMMENTARY - BY LACH­LAN CARMICHAEL

Fears of a Greek euro exit have re­turned with a bang after Athens called early elec­tions on Mon­day, but steps taken after the fi­nan­cial cri­sis should stop the rest of the cur­rency zone im­plod­ing, an­a­lysts say.

The big­ger is­sue is of po­lit­i­cal con­ta­gion across the EU, with an­ti­aus­ter­ity par­ties across the con­ti­nent likely to be boosted if Greece’s rad­i­cal left Syriza party wins the Jan. 25 polls, they said.

Brussels and Berlin re­acted with alarm after law­mak­ers failed for a third time to choose a new pres­i­dent and trig­gered snap elec­tions, with both urg­ing Greek vot­ers to back re­forms de­manded by in­ter­na­tional cred­i­tors.

“This is the worst case sce­nario,” Jan Techau, di­rec­tor of the Carnegie Europe think-tank based in Brussels, told AFP.

“The un­cer­tainty is a stark min­der the cri­sis is not over.”

Greece’s debt led the eu­ro­zone to the brink of col­lapse in 2012, with the Euro­pean Union, Euro­pean Cen­tral Bank and In­ter­na­tional Mon­e­tary Fund cough­ing up two huge bailouts to avoid Greek exit from the cur­rency, the so-called Grexit.

But Techau stressed it was a “big if” that Syriza would end up re­plac­ing Prime Min­is­ter An­to­nis Sa­ma­ras’s cen­ter-right coali­tion, with Greeks hav­ing steered clear so far of rad­i­cal par­ties.

‘Po­ten­tial euro exit’

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Even if Syriza does win, the party’s charis­matic leader Alexis Tsipras may not carry out his threat to re­nege on key parts of Greece’s bailout agree­ment with the EU and IMF, an­a­lysts said.

“The ul­tra-left Syriza has mod­er­ated its tones slightly,” Hol­ger Sch­mied­ing of Beren­berg Bank said.

Nonethe­less, Sch­mied­ing said there was “a risk of around 30 per­cent that Greece may de­scend into a new deep cri­sis with po­ten­tial euro exit beyond the in­evitable bout of near-term un­cer­tainty now.”

What had changed since 2012, an­a­lysts said, was the risk that a Greek exit would spread to the rest of the eu­ro­zone — the sin­gle cur­rency bloc that will num­ber 19 coun­tries when Lithua­nia joins on Jan. 1.

The EU has set up a huge 500 bil­lion fire­wall to pre­vent a re­peat of the debt cri­sis, while Euro­pean Cen­tral Bank chief Mario Draghi calmed the storm in 2012 by promis­ing to do “what­ever it takes” to save the euro.

The rel­a­tive strength of Spain and Ire­land com­pared to two years ago was also a pos­i­tive fac­tor.

“A tragedy for Greece would prob­a­bly not turn into a sys­temic cri­sis for the eu­ro­zone as a whole,” Sch­mied­ing said.

Jac­ques Cail­loux of No­mura Se­cu­ri­ties agreed.

“We’re no longer in the same sit­u­a­tion as be­fore be­cause the ECB has con­tained the con­ta­gion ef­fects for two years,” Cail­loux told AFP.

Po­lit­i­cal Con­ta­gion

But the risk of po­lit­i­cal con­ta­gion across Europe is another mat­ter.

Left-wing par­ties such as Spain’s Pode­mos have made huge gains in a rel­a­tively short time and see Syriza as a model for chal­leng­ing harsh aus­ter­ity dik­tats from Brussels and Wash­ing­ton.

Pode­mos leader Pablo Igle­sias ex­changed cel­e­bra­tory tweets with Tsipras after Mon­day’s re­sult, pre­dict­ing that “2015 will be the year of change in Spain and in Europe.”

Opin­ion polls put Pode­mos in the lead in the run-up to leg­isla­tive elec­tions in Spain in Novem­ber.

At the other end of the po­lit­i­cal spec­trum, right-lean­ing euroscep­tic par­ties such as Nigel Farage’s UK In­de­pen­dence Party are also rid­ing high on wide­spread dis­il­lu­sion­ment with Brussels.

“A win for Syriza could boost the pop­u­lar­ity of other an­ti­aus­ter­ity par­ties in the eu­ro­zone as long as the eco­nomic sit­u­a­tion in Greece does not de­scend into chaos fol­low­ing the emer­gence of the new gov­ern­ment,” said Diego Is­caro, an an­a­lyst with IHS Global In­sight.

A Greek exit could mean­while cause broader geopo­lit­i­cal prob­lems.

There was a risk that if Europe fails to act then Athens could be bailed out by China or even Rus­sia, both of which have a “huge geopo­lit­i­cal in­ter­est in gain­ing in­flu­ence,” said Techau, the Carnegie Europe di­rec­tor.

“We don’t want that coun­try un­der the in­flu­ence of an out­side power,” Techau said, adding Greece could be un­der pres­sure to veto EU de­ci­sions on sanc­tions on or trade with other coun­tries.

The Euro­pean Union has im­posed a se­ries of eco­nomic and other sanc­tions against Rus­sia over the cri­sis in Ukraine.

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