Earlier we wrote up a note from BNP Paribas discussing the dramatic economic collapse that would happen in Greece (on top of what’s happened already!) were Greece to quit the Euro.But before Greece gets to that state, something else has to happen first: basically, the mother of all games of Chicken.
If there is a June election, the likely victor will be Alexis Tsipras, and that will be interesting…
BNP’s Paul Mortimer-Lee sets the stage:
Alexis Tsipras, leader of the left-wing Syriza party in Greece, who is currently trying to put together a government, attacked the “barbarous” austerity plans for Greece and demanded the agreements be torn up. The leaders of the New Democracy and Pasok parties, who saw their positions undermined by public hostility to austerity, would want to have a less severe programme than they signed up to only a few weeks ago – in return for EUR 75bn already paid over.
Meanwhile, ECB Executive Board member Joerg Asmussen said that Greece cannot renegotiate its reform programme if it wants to keep the euro. Given that the ECB extends funds to the Bank of Greece, which, in turn, lends funds under the ELA to keep the banks going, we have to take this warning as serious. The ECB doesn’t bluff, and when it gets serious, it plays rough. Ask Mr Berlusconi.
So Tsipras will demand the impossible: No cuts, more government spending, and not leaving the Euro.
Obviously Europe can’t just say: OK, no cuts, and here’s all your money.
On the other hand, a pure refusal dramatically raises the odds that Greece would leave the Euro, and that would be a nightmare for Europe, as it would set a template for departure, and encourage markets to launch speculative attacks against other weak-links.
The stakes are huge, and it’s very easy to see this game actually happening.
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