Monday, January 12, 2015

After Elections, Greece Will Be in Race Against Time

by Hugo Dixon

Reuters/New York Times

January 11, 2015

The possibility of a bank run is Greece’s Achilles’ heel.

The country probably won’t be forced out of the euro. But there is a scenario in which this could happen. If Syriza, the radical-left party, wins the coming election, then runs out of time before it can perform the U-turn necessary to keep its creditors happy, depositors might panic.

Syriza is the clear favorite in the elections on Jan. 25. If it emerges victorious, it could be heading for a clash with its eurozone creditors. The party has promised to cut Greece’s debt and increase public spending, but it will not be able to get an agreement to do this.

Germany, which drives eurozone policy, is not too afraid of financial contagion if Greece defaults on its debts and quits the euro. Berlin is more worried about the political contagion if it cuts Athens too much slack. Other countries, especially France and Italy, might then go slowly with their own economic overhauls.

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