Wall Street Journal
June 14, 2012
Greece plays a win-or-go-home game against Russia on Saturday in Europe's quadrennial soccer championship. It faces a different kind of elimination match Sunday, when voters go to the polls in repeat elections that could determine the country's future in the euro zone.
Both are close calls and stir plenty of passions. Sunday's election promises to be a nail-biter between pro-bailout conservatives and leftists threatening to tear up Greece's rescue agreement with the European Union. Reneging on that could cause Europeans and the International Monetary Fund to yank funding; Greece could go broke and be forced from the euro.
Among those with a lot riding on the outcome: the European Central Bank. It owns about €45 billion ($56.5 billion) of Greek government bonds. Meanwhile, the Bank of Greece's liabilities to the ECB total around €100 billion.
More broadly, there is a risk that the election becomes "a Lehman moment," says Berenberg Bank economist Christian Schulz, freezing credit and activity across the 17-member euro zone. Even an inconclusive election outcome may do similar damage.
If such a worst-case scenario plays out, look for the ECB to pull out all the stops by cutting interest rates, lending more to banks or possibly even restarting its dormant bond-buying program.
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