Skip to main content

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions

What Is Plan B for Greece?

Though the far-left Syriza party’s recent election victory has sent Greek equities and bonds plummeting, there is little sign of contagion to other distressed countries on the eurozone periphery. The question is how long this relative calm will prevail.

TOKYO – Financial markets have greeted the election of Greece’s new far-left government in predictable fashion. But, though the Syriza party’s victory sent Greek equities and bonds plummeting, there is little sign of contagion to other distressed countries on the eurozone periphery. Spanish ten-year bonds, for example, are still trading at interest rates below US Treasuries. The question is how long this relative calm will prevail.

Greece’s fire-breathing new government, it is generally assumed, will have little choice but to stick to its predecessor’s program of structural reform, perhaps in return for a modest relaxation of fiscal austerity. Nonetheless, the political, social, and economic dimensions of Syriza’s victory are too significant to be ignored. Indeed, it is impossible to rule out completely a hard Greek exit from the euro (“Grexit”), much less capital controls that effectively make a euro inside Greece worth less elsewhere.

Some eurozone policymakers seem to be confident that a Greek exit from the euro, hard or soft, will no longer pose a threat to the other periphery countries. They might be right; then again, back in 2008, US policymakers thought that the collapse of one investment house, Bear Stearns, had prepared markets for the bankruptcy of another, Lehman Brothers. We know how that turned out.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/MQo3TYX;
  1. solana114_FADEL SENNAAFP via Getty Images_libyaprotestflag Fadel Senna/AFP via Getty Images

    Relieving Libya’s Agony

    Javier Solana

    The credibility of all external actors in the Libyan conflict is now at stake. The main domestic players will lower their maximalist pretensions only when their foreign supporters do the same, ending hypocrisy once and for all and making a sincere effort to find room for consensus.

    4

Edit Newsletter Preferences