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News Analysis: Three possible outcomes of Greek crisis

06-14-2012 20:24 BJT

BEIJING, June 14 (Xinhua) -- Sunday's Greek elections would again put the debt-ridden country at a crossroads in its relationship to the eurozone.

Although all the contending parties have vowed to keep Greece in the single currency, other possibilities are not ruled out.


As the gap between the Greek conservative pro-reform and pro-bailout New Democracy party and anti-bailout Radical Left Coalition has been narrowing before the elections, the most likely outcome would be that neither party would decide to leave the eurozone nor would then unconditionally implement the austerity measures imposed by Brussels and the International Monetary Fund (IMF).

Instead, the new government would negotiate with the troika of the European Commission, the IMF and the European Central Bank.

In the meantime, other eurozone countries would come to terms with the need to keep Greece from bankruptcy so as to avoid a possible domino effect on themselves.

To keep Greece inside the single currency and continue an EU bailout would not only lift the eurozone onto a stronger economic and fiscal union with better coordination and sustainability, but also drive risks away and bring a slow rebound of the financial markets.

However, it is hard to predict whether Greece could fully recover from the depression. The debt crisis might be a long-term hidden danger for the eurozone.


The worst scenario would be Greece unilaterally exiting the single currency, forcing other eurozone countries to take emergency measures.

In that case, Greece would fall back into using its original currency and be cut off from the international capital market.

Meanwhile, Greece's exit would directly cost the eurozone 350 billion to 400 billion euros and shake the international financial market as well.

Goldman Sachs predicted recently that if Greece exits disorderly from the eurozone, the economy of the whole euro area could contract 2 percentage points.

If the risks brought by Greece's departure spread, Britain's Standard Chartered bank said, the eurozone would collapse under extreme circumstances, or shrink to a smaller bloc.


This outcome may come if the new Greek government fails to compromise with the EU and reject the implementation of austerity and reform measures, under which the European Central Bank would halt the flow of euro liquidity to Greece and exclude Greece from the euro area.

The impact of the third outcome on Greece is similar as the worst scenario mentioned above.

However, as no consensus has been reached within the single currency bloc and a financial "firewall" has not been completed, EU's exclusion of troubled Greece seems to be unlikely in the short term.

Editor:Wang Chuhan |Source: Xinhua

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