Opinion

Syriza Win in Greece Won't Be a Disaster for EU

Nicholas Economides
Quote icon
While these decisions would have serious implications for Greece, the likelihood of a Grexit causing a euro-zone ripple effect is more hype than fact.
By Nicholas Economides
As we approach Sunday's Greek election, the extreme left party Syriza is leading in the polls, causing many in Europe and the United States to fear the worst when it comes to Greece's future economic stability and its status in the European Union. While everyone should be closely watching Greece's actions, it is unlikely that even a Syriza victory will spark widespread sovereign bank contagion or a Greek exit from the EU, recently referred to as a "Grexit."

Syriza has proposed significant increases in wages, pensions and of the state sector in general, conservatively estimated to cost 20 billion euros, with no immediate sources of funding. Existing uncovered financial needs of Greece in 2015 are about €20 billion, bringing the total needs of Greece to €40 billion in 2015 if the Syriza program is implemented. Syriza has also threatened not to pay Greek sovereign debt to European countries unless there is a reduction of the total Greek sovereign debt from 177 percent of GDP to 60 percent of GDP. This is a whopping €212 billion reduction — a 95 percent write-off when applied to the official sector loans from European countries, the European Financial Stability Facility and the European Central Bank (which total €222 billion). Syriza has also committed to voters not to renew the agreements between the European Union, the ECB, the IMF and Greece on fiscal consolidation and economic reforms.

While these decisions would have serious implications for Greece, the likelihood of a Grexit causing a euro-zone ripple effect is more hype than fact. Here's why.

Read full article as published by CNBC

___
Nicholas Economides is a Professor of Economics.