Greece Is the Word (Again)

As everyone knows by now, the Greeks have failed to elect a new President and this has triggered a snap election for Parliament in January. The anti-austerity party, Syriza, is favored to win, which would put Greece on a collision course with the "Troika" of the EU, the IMF and the ECB. The result could be a replay of the 2010 "Grexit" crisis, but this time with one very important difference.

Back in 2010 at a conference in Vienna, I asked a former Austrian Finance Minister if, given the chance to call a mulligan, the rest of the Eurozone would allow Greece in again. He glared at me and called me a typical Anglo-Saxon hater of the great European unification "project," but then rather pointedly refused to answer the question. But he didn't have to. The answer was clear.

This is a country that has fallen on hard times since the death of Aristotle and Alexander the Great, and which, so far, shows no sign of reclaiming its earlier good form. Since Lord Byron and the other Romantics arranged for its independence from Turkey in 1832, it has spent more time in default than out of it. The Greeks, with the assistance of Goldman Sachs , also lied their way into the Eurozone, and this is something that is not easily forgotten. Put all of these things together, along with the Greek refusal to pay their domestic taxes while flaunting their wealth internationally and some very impolitic hangings of Angela Merkel in effigy, and it is not surprising that many northern Europeans would happily see the backside of the Greeks. If you'll pardon the pun.

Back in 2010, however, one thing stopped them: The fear of "contagion" as a Grexit quickly mutated into far more devastating crises in Spain and Italy, a "Spexit" and an "Italexit." Greece is tiny, accounting for only 2.4 percent of the Eurozone economy back then (and even less now), but Spain and Italy would have been body blows. And, while it was possible to bail out the Greek national debt, the Italian version, which is one of the largest in the world, would have been a different matter altogether.

Which is why it is very interesting to watch the reaction of the Spanish and Italian markets to this most recent Greek drama. They have barely moved, while the Greek bond and equity markets have swooned. The markets obviously believe that the EU, and especially the ECB, have used the time since 2010 to build a "firewall" around Greece. Which means that, although it would hurt (since a Grexit would be immediately followed by devaluation and default on Euro debts), the rest of the Eurozone may very well decide that this is a better alternative than throwing (more) good money after bad. This could make the negotiation dynamic between a Syriza-led government and the Troika very different this time around.

This situation bears watching. Although the financial contagion may be contained, with the rise of anti-EU parties throughout Europe, the political spillover may be large. Something tells me that the Trojan Horse within the Eurozone walls is not done wreaking havoc.

Roger Barris, London