ON JUNE 17th the brinkmanship on the Aegean will take another twist. Even if the New Democracy party manages to form a government it will seek to renegotiate the terms set earlier this year by European creditor nations for Greece’s second bail-out. If instead the victor is Syriza, the left-of-centre group bent on scrapping the deal, the markets fear that this will lead ineluctably to Greece leaving the euro and inflicting heavy collateral damage on the rest of the euro zone on the way. But there is nothing automatic about the precise timing and mechanism of a “Grexit”.
If Alexis Tsipras, Syriza’s leader, were unilaterally to announce a debt moratorium, as he has threatened to do, then this would almost certainly precipitate a swift exit. All bail-out funds would be cut off. With Greece defaulting on its debt, the European Central Bank (ECB) would no longer be prepared to permit the provision of liquidity for Greece’s tottering banks. If the Bank of Greece did not comply with the ECB’s ruling, Greece could in the last resort be cut off from the euro zone’s payments system, points out Malcolm Barr, an economist at JPMorgan. The Greek government would have to reintroduce the drachma, which would immediately plunge in value against the euro.
But Mr Tsipras would have to form a coalition and would be constrained by his partners.