This article which appeared in the Economist Magazine online a few days ago is a pretty good summary of where things stand in Greece as they approach a new election later this month. First we should make sure we define a term now seen in media articles about Greece. A "Grexit" is a term used to describe Greece leaving the EU and adopting its own currency instead of using the Euro. This article in the Economist explains why the odds are against this happening regardless of the results of the upcoming election. A few quotes from the article and then a comment are below. Please click the link above to read the full article.
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"NOT for the first time, an impending Greek election is fraying European nerves. The snap election that Antonis Samaras, the Greek prime minister, has called for on January 25th has reawakened fears that Greece might have to leave the euro zone, an outcome that was narrowly avoided in 2012 and could still be disastrous both for Greece and the single currency. A Grexit could happen if Syriza, the left-wing opposition party led by Alexis Tsipras, which is currently ahead in the polls, wins the election and confronts Greece’s creditors with demands they find incompatible with Greece staying in the monetary union. A political decision to expel Greece could be enforced by the European Central Bank cutting off Greek banks from its liquidity operations and payments system. Will the Greek election cause a Grexit?"
. . . . . . .
"On this occasion, both countries (Greece and Germany) once again have reasons to avoid a Grexit, but the balance of bargaining power has shifted away from Greece to Germany. The systemic risk for the euro zone of Greece leaving is less salient than in 2012 because bond yields have collapsed throughout the periphery, not least on expectations that the ECB will adopt a big programme of quantitative easing. That will encourage the German government to take a hard line. The Greeks, for their part, have in any case already endured much pain in order to stay in the euro, which a clear majority regards as good for the country rather than bad. The economy has come out of its tailspin and although Greece is heavily indebted to its official lenders, the terms are extraordinarily lenient. What this suggests is that the pressures within Greece to avoid a confrontation, either by Syriza doing less well than expected at the polls, or through a more emollient stance by Mr Tsipras if he does win power, may just be sufficient to avoid a Grexit."
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My added comments:
This article basically points out that when push comes to shove both sides of this issue have a lot at stake and strong incentives to work out a solution for Greece to stay in the EU and use the Euro. None of us can know the future, but there are credible sources who agree that a "Grexit" is unlikely. Jim Rickards has stated his opinion that it is unlikely. In addition, highly credible readers of this blog closer to the situation in Greece have indicated to me that they also think a "Grexit" is not likely.
By the end of January (the 25th) we will know the results of the election and we will follow that here.
added note: Bloomberg article on Greece
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