Greece really might leave the euro

by Matt O'Brien

Washington Post
January 30, 2015

The world's worst portmanteau is back: Grexit.

That's short for "Greek exit," as in Greece leaving the euro. And it's once again a possibility now that the left-wing, anti-austerity party Syriza has won power in the latest elections. The risk, as I've said before, is that the rest of Europe is in good enough shape that Germany finally thinks it can let Greece leave, and Greece's budget is in good enough shape that it finally thinks it can leave too. Neither of them wants that, but neither of them doesn't want it so much that they'd do anything to avoid it—so both might call each other's, as it turns out, non-bluffs if Syriza tries to force Germany to renegotiate Greece's gargantuan debt.

Cue the market freakout in three, two, oh, it's already here? Why yes, yes it is. Greek stocks fell 11 percent on Tuesday, another 9.2 percent on Wednesday, before stabilizing up 3.2 percent on Thursday. Three-year borrowing costs shot up to 16.9 percent. And worst of all, Greek banks collapsed between 30 and 45 percent in just the last week. That's enough, as we'll see in a minute, to make it much more likely that Greece leaves the euro.

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