Eurozone can cope with 'Grexit'

Eurozone can cope with 'Grexit'

The Eurozone is in a much better position to manage a Greek exit ('Grexit') than it was several years ago, argues AMP Capital chief economist Shane Oliver.


Uncertainty has returned about the possibility of a 'Grexit' ahead of Greece's 25 January election, with left-wing party Syriza leading in the polls, Mr Oliver said.

"This uncertainty could linger for a while yet, particularly if the election does not result in a government as occurred in May 2012, necessitating another vote," he said.

But the possibility of a Grexit is not the threat it was several years ago, Mr Oliver said.

The left-wing party, while ahead in the polls, would be unlikely to be able to govern on its own, he said – and its anti-Euro rhetoric has been toned down.

"[Syriza] realises that most Greeks want to stay in the Euro, suggesting if it does win it would ultimately seek a deal with the Troika (the ECB, Eurozone and IMF that now own 80 per cent of Greek debt)," Mr Oliver said.

Even if the dreaded 'Grexit' does take place, peripheral Eurozone countries like Portugal, Ireland and Spain are in much better shape and therefore less vulnerable to contagion, he said.

"Finally, the defence mechanisms in Europe are now far stronger with a strong bailout fund, a banking union and a far more aggressive ECB committed to doing “whatever it takes” to preserve the Euro," Mr Oliver said.

 

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