May 19, 2024

Europe Braces for Greek Vote — and Maybe More

With a good chance that the elections will produce either a political stalemate or a populist left-wing government in Athens, even people who say they do not believe Greece will drop out of the common currency are preparing for that possibility.

Because there has been time to prepare, some economists say, Greece’s departure from the euro will not be as much of a shock as the collapse of Lehman Brothers in 2008, which provoked a global financial crisis. Nor is it likely to be as abrupt. Even if a new Greek government eventually decided it could no longer stay in the euro union, no one expects an immediate, hasty exit.

Lehman was a surprise. But Typhoon Greece has been swirling offshore for months if not years, giving investors, governments and euro zone citizens plenty of time to batten their financial hatches.

They have drained money from Greece and put it into assets considered safe, like German or Swedish bonds. Foreign businesses with operations in Greece have been demanding payment up front from local customers, lest they later have to accept devalued drachmas. Some, like the French bank Crédit Agricole, are putting their Greek operations under quarantine to keep any infection from spreading.

Policy makers have been busy, too, though they are reluctant to say so. The European Commission acknowledged this week that it had been looking at whether it would be legal to allow restrictions on the movement of capital within the euro zone. The European Central Bank is reinspecting its tool kit, which could include lowering its benchmark interest rate or giving banks another shot of cheap, long-term loans.

But, in fact, there are limits to how much European officials can actually do, because of the same structural limitations to the euro currency union that have let the Greece problem fester so long in the first place.

“The consequences are incalculable — nobody can pretend to know what would happen,” said Holger Schmieding, chief economist of Berenberg Bank in London. But he added, “Policy makers are very aware this is a high-risk event and are thinking through possibilities, which they didn’t do before Lehman.”

Are the preparations adequate?

Views on that issue have become increasingly polarized. Some economists and policy makers say that the departure of Greece would be a shock to the world economy, but survivable, and maybe even not that big a deal.

“I do believe it would be tolerable for the remaining member states,” said Ferdinand Fichtner, head of forecasting at the German Institute for Economic Research in Berlin, which advises the German government. But Mr. Fichtner, speaking to reporters in Berlin, quickly added, “It should be the last option.”

In the opposite camp is the E.C.B., which has warned that the shock could indeed rival Lehman’s collapse. There are simply too many unknowns to quantify, Vítor Constâncio, the vice president of the central bank, said this week.

“Any assessment would be virtually impossible to do,” he said.

Jean-Paul Chifflet, the chief executive of Crédit Agricole, said at the annual shareholders’ meeting in May that he was “looking at all potential options when it comes to Greece.” On Thursday, the French bank’s Emporiki Bank subsidiary in Athens announced that it was transferring control of units in Albania, Bulgaria and Romania to the Crédit Agricole parent company in what was evidently a move to shield those assets from whatever might ensue in Greece.

Mr. Schmieding of Berenberg Bank, who admits to “a naïve belief that Europe always rises to the challenge,” argues that the threat posed by unruly Greek politics has already prodded euro zone leaders to extraordinary action, and that they would do even more if Greece went overboard.

He cited the urgency with which euro zone finance ministers cobbled together a plan to bail out Spanish banks last week, a scramble that “only makes sense in the context of the Greek election,” Mr. Schmieding said.

Stephen Castle contributed reporting from London and David Jolly from Paris.

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