Comment: Markets calm as Greek tragedy unlikely

The EU might just call what it thinks might be the Greek bluff. Picture: Getty
The EU might just call what it thinks might be the Greek bluff. Picture: Getty
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FINANCIAL markets held their nerve yesterday despite the radical-left Syriza party sweeping to power in Athens. Party leader Alexis Tsipras has pledged to fight for substantial Greek debt “forgiveness” – ie write-off – from the European Union and its hated technocrat enforcers, the European Central Bank (ECB) and the International Monetary Fund(IMF).

There is much talk amid the populist post-electoral euphoria of ending Greece’s “humiliation and misery” after years of austerity. Emotive, if understandable, language.

Jobs, pay and pensions have all been ravaged in the country, with unemployment running at about 25 per cent, nearer 50 per cent for young Greeks. It is a recipe for civil disorder and has been the seedbed for the appeal of Tsipras, long on charisma, short on political experience.

But the early calm reaction to the Syriza victory suggests investors anticipated Greek banks would be hammered on fear of a run on them, as they were yesterday with roughly double-digit price falls at Piraeus Bank, National Bank of Greece and Alpha Bank. Greek bonds were also hit.

But Syriza’s ascension to power is not being viewed by markets as Acropolis Now, an Armageddon in the wings. The UK’s FTSE 100 index edged higher, while Paris and Frankfurt also remained in positive territory.

This current relative equanimity is partly due to cool calculation that Germany, France and the rest of a comparatively solvent Europe could face down Syriza in any brinkmanship negotiations about continued Greek membership of the euro, or even the EU.

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And sometimes it does seem that, even allowing sympathy for that country’s travails, Greece is like a man holding a gun to his own head, shouting “If you don’t give me what I want I’ll blow my brains out”. The truth is the EU might just call what it thinks might be the Greek bluff.

Secondly, if the new radical administration took the country lemming-like off the cliff away from EU financial lifelines it is likely that the single market could take it.

That nation does not constitute a sizeable part of GDP within an economically struggling EU. The fallout from a Greek exit would be painful, but bearable, for the rest of the single market.

And, quite apart from the chronic economic weakness that is Syriza’s inheritance, when the effects of any Grexit are weighed, the EU cannot afford to blink first.

It would send out a bad message to other bailed out countries, such as Ireland and Portugal, that they are mugs to pay their debts if Greece is allowed off the hook. It would be saying the financial goalposts on bailouts are moveable if emotions run high enough.

Hardly a credible template for a viable financial and economic union.