ATHENS (Reuters) - The idea that a Greek euro zone exit could be handled without much damage to the rest of the bloc is met with disbelief in Greek government circles.
With elections just six days away, leftist Syriza leads the opinion polls and is intent on cancelling the austerity terms of a bailout from Europe and the International Monetary Fund and also wants a big debt write off.
That has prompted a succession of German politicians and economists to proclaim that Greece risks being cut loose from the euro, although Syriza insists it wants to stay in.
With almost 80 percent of Greek debt now held by euro zone governments and the European Central Bank poised to embark upon a government bond-buying programme, the risk of contagion via the financial markets would be limited, the argument runs.
“Greece is no longer of systemic importance for the euro,” the head of the influential Ifo economics research institute Hans-Werner Sinn said, summing up the view of many conservative German policymakers.
Prime Minister Antonis Samaras has been busy talking up the dangers of “Grexit” during the election campaign in an attempt to win over voters. Government officials say the risks stretch far beyond Greece’s borders and insist their view is not merely shaped by electioneering.
“Just the threat of Greece defaulting will shake up euro zone’s economies in a very fragile period,” said one senior Greek official. “Euro zone policymakers don’t have a risk management plan in place if things go crazy after the elections and that’s a mistake.”
Officials in Brussels say they are not taking the prospect lightly and say there would be unpredictable repercussions.
Given Syriza wants to stay in the euro zone, they believe there is will on all sides to make that happen but if the situation got out of hand, unlike in 2012, there are firewalls to contain contagion, the markets mood is different and the ECB looms large.
Some analysts say, while the risks of a repeat of the chaos seen in 2012 are minimal in the short-term, the longer-term repercussions of a Greek euro zone exit should not be underestimated.
“A ‘Grexit’ would not cause serious problems for the euro zone in the short term,” said Nikos Vettas, head of IOBE, Greece’s most influential think tank.
“In the medium term however, it would pose the question as to whether there is cohesion within the euro zone and if the ultimate aim of integration is attainable.”
Despite more robust financial defences, the departure of a euro zone member would transform what was designed as a permanent, unbreakable union into an open-ended alliance.
Colin Ellis, Moody’s chief credit officer for Europe, said the risk of a Greek exit was “materially lower” than it was in 2012 but would have unforeseeable consequences.
“Yes, contagion channels have been reduced but European authorities would still need to act swiftly and resolutely in order to contain the pressures arising in the event of a Greek exit because the impact would be very hard to predict.”
The warnings from Brussels and the IMF are coming thick and fast.
European Commission President Jean-Claude Juncker told Reuters any new Greek government would have to deliver on the commitments of its predecessors, and IMF chief Christine Lagarde said debt restructuring would have consequences.
“Defaulting, restructuring, changing the terms has consequences on the signature and the confidence in the signature,” she said on Monday.
The Greek government privately plays down the odds of a “Grexit”, but warn that a series of wrong moves could put the country close to the edge with the bailout expiring at the end of February and leaving little time for negotiation.
“We won’t have a ‘Grexit’. It’s not like in 2012 but we could get close to what happened then, especially if there are signs of a bank run,” the official said.
Signs of trouble within the banking system have already emerged in recent days, with bankers saying about 3 billion euros of deposits were withdrawn in December - the steepest fall since June 2012. That helped push two major Greek lenders to apply to tap emergency funding from the national central bank.
Greece’s funding obligations pose another problem. Syriza says cash reserves are enough to meet obligations of 3.5 billion euros over the February-March period. The government, however, has warned that state coffers could struggle if tax revenues continue to fall as they did in December.
Either way, the next government will have to negotiate an agreement to secure a final bailout tranche worth 7.2 billion euros (£5.5 billion) or risk a funding crunch in the summer.
With Greece once again effectively shut out of debt markets after a tentative return last year, a total of 1.5 billion euros in principal and interest fall due in June with further payments of 4.7 billion euros in July and 3.6 billion in August.
Editing by Mike Peacock