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5 June 2019

Credit markets don’t trust Greece to stay in the euro

Could be a mechanical grexit? A mecha-grexit?

By Alex Hern

Via Pragmatic Capitalism comes this mildly alarming note from research group Capital Economics:

Recently, the problem of tight credit conditions have been exacerbated by domestic and foreign firms becoming more unwilling to sell goods to Greek customers unless they are paid for up front. In other words, credit risk is stopping some transactions from taking place. What’s more, some foreign buyers of Greek goods and services are delaying payment, in case Greece exits and the size of their bill (in euro-terms) drops.

Meanwhile, the bank jog continues. And Capital Economics predict 2012’s contraction to be three points worse than the EU’s forecast, and 2013’s to be seven points worse.

All of which is to say that the political aspect of the situation is getting less and less relevent. If investors, trade partners, and, yes, Greek citizens themselves carry on behaving as if Greece has already confirmed it is exiting the euro, there is every chance that a they may create a self-fulfilling prophecy. Earlier this month, Paul Mason explained how bank withdrawals can force such an event, and its not hard to see how entirely cutting Greece off from credit or international trade would do the same thing (although slightly less mechanically).

The difference for the Greek people between a politically motivated exit and a economically forced one is likely to be small, of course. But for the broader continent, particularly the rest of the periphery, the latter presents a much higher chance of contagion. Because if a country can end up outside the eurozone despite its leaders, then there doesn’t seem much that, for example, Rajoy could say to save Spain at all. Actions must speak louder than words.

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