Grexit will happen much more quickly than politicians think | City A.M.
The last remaining question is whether the negotiations to form a new government succeed – or whether Greece ends up with fresh elections and a rabidly anti-austerity government. If the latter, as looks increasingly certain, there is no way that the European authorities will feel able to extend yet more bailout funds to Greece when its current batch runs out in July.
Nobody will wait until Greece’s last handout is entirely used up, however – it is easy to work out that no more EU money would mean that the government would no longer be able to keep paying public sector wages and benefits, and that it would default on its national debt. The only way to prevent a complete run would be to freeze all bank accounts, impose capital controls (in breach of EU rules) and for the government to attempt to buy yet more time by issuing IOUs. That won’t work, so it will quit the euro – and that means all Greek banks losing their ECB liquidity and going bust. Why would anybody wait for any of this? As soon as it becomes apparent that the game is up, Greece will be forced out of the euro. It could all happen very quickly indeed.
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