The combination of nearly two-thirds of Greeks voting for parties opposed to the recent bailout and a new election campaign (due to the inability of any party to form a working government coalition) seems to have switched world financial markets back into risk-off mode. With the latest polls suggesting the outcome of the June 17th election is very much up in the air, the discussion has now moved to how would a Grexit take place, and what would the consequences be? An overview of some of the issues (and known unknowns) appears in a 4-article series published over the past week in the Financial Times. While most agree that the near-term consequences for Greece would be severe, the key question (unless you're a Grecian) is how large would the contagion effect be – would a Grexit spark a bank-run in the remaining PIGS that would doom the Euro project? More broadly, what are the political implications of a Grexit for the future of the E.U. project? Looking forward, could it lay the groundwork for the emergence of a new Russian-Greco alliance?
To provide some background on the macro context, the last page of the first attachment is a short note from The Economist plotting GDP over the past 4 years in key Euro-zone countries – which highlights the bad news for the denominator in the debt-GDP ratio. On this note, it is also worth reflecting on how little progress Greece has made over the past 2 plus years in structural reforms to fix some of the many domestic barriers to economic success – for those interested in some background on the Grecian economy see an attached working paper.
For a recent story on how this impacts business entry, I have attached a sadly humorous article on one entrepreneur's effort from the New York Times.
