Greece rejects six-month extension of EU bailout as talks stall.
In 2011 and 2012, Greece’s fate seemed closely tied to the rest of Europe. Losing Greece would have signalled the first domino falling, followed by perhaps Portugal, perhaps Spain or Italy, unravelling the whole project.
Right now, however, Greece looks like its own separate case, and very few people think that Grexit would force that chain reaction.
Greece’s current bailout expires on 28 February. Any new agreement would need to be approved by national governments so time is running out to reach a compromise, without which Greece is likely to run out of money.
The Economist Intelligence Unit puts the Grexit risk at more like 40% and rising. While Morgan Stanley gives these probabilities of what will happen in the days and weeks ahead:
- Greece eventually goes back to the bailout programme: 55% likelihood. In this scenario Greece gets no haircut on its debts (which the government wants), it gets its international funding but also has to implement continued austerity and economic reforms.
- Greece has a “staycation”: 25% likelihood. This would mean Greece implements capital controls – strict rules that halt the outflows of money from banks – like Cyprus did during its 2013 crisis.
- Greece leaves the eurozone “Grexit”: 20% likelihood. Without European assistance, the life support Greece’s banks are on is pulled away. It’s hard to say exactly what the risk of a Greek banking collapse is to the rest of Europe.