Counterparties: The ‘hunt for a government’ in Greece
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At a time when it’s facing an ultimatum from Europe, Greece has given up its “nine-day hunt for a government.” New elections are on the way in June, and Greece’s anti-austerity left is expected to win.
For now, Greece’s lame-duck transition government can’t respond to Germany’s open threats to accept crippling budget cuts or leave the euro zone. This is happening as Greece’s deputy prime minister is warning that his country could run out money in six weeks, the Greek stock market fell 4.5% in seconds – and have we mentioned a Greek leader is now warning about civil war?
This time, in Europe at least, is actually a bit different. After days of speculation about euro officials pondering a Grexit, IMF chief Christine Lagarde admitted that an “orderly” Greek exit from the euro zone is a possibility. “It is something that would be extremely expensive and would pose great risks but it is part of options that we must technically consider,” she told France24. (Lagarde left the door open to examining “the details” of Greece’s bailout program.)
There are also some very specific ideas of the costs involved if Greece exits the euro. Losses for French banks could reach $25 billion; German banks could see a $6 billion loss, according to one estimate. JPMorgan estimates the immediate costs for Europe could be $513 billion. UBS figures that leaving the euro zone could cost a country like Greece $12,000 to $14,000 per citizen and lead to a 50% drop in its volume of trade.
Much harder to tabulate is the longer-term domino effect a Grexit could have. James Bianco, building on Paul Krugman’s reasoning, pictures a bleak scenario: freaked-out bank depositors moving their money from Greece, then from Spain and Italy, raising these countries’ borrowing costs and necessitating more bailouts.
All of which makes it somehow fitting that new French President François Hollande’s plane was struck by lightning today. Hollande was on his way to discuss Europe’s economic governance with Germany’s Angela Merkel; he’d just been sworn into office. – Ryan McCarthy
On to today’s links.