By Jack Duffy

PARIS (MNI) – Alexis Tsipras, leader of Greece’s left-wing Syriza
party, says if he can form a government he will tear up the country’s
EU/IMF bailout deal, impose a debt moratorium, end wage cuts for Greek
workers and nationalize Greek banks. Is he bluffing?

Joerg Asmussen, European Central Bank Executive Board member, says
the ECB won’t renegotiate any new terms with Greece and that Athens has
“no alternative to the agreed consolidation program if it wants to
remain a member of the Eurozone.” Is he bluffing?

And German Finance Minister Wolfgang Schaeuble says “the Eurozone
can handle a Greek exit. Europe does not go down that easily.” Is he
bluffing?

The furor that has followed the massive vote for anti-austerity
parties in Greece’s parliamentary elections on Sunday has been marked by
brinksmanship on all sides as the question of a Greek exit from the
Eurozone once again comes to the fore.

“There has been a lot of loose talk in Athens and Berlin about an
exit but it’s all bluff,” said Nicholas Spiro, managing director of
Spiro Sovereign Strategy, a London consulting firm.

“There is a lot of ammunition for the let-Greece-go camp and it is
all coming from the LTROs,” he said, referring to the ECB’s two 3-year
financing operations that injected E1 trillion into European banks and
temporarily calmed the debt crisis.

In truth, the risks to the Eurozone and the ECB from a Greek
default and Eurozone exit are “incalculable,” as Asmussen said in a
speech only three months ago. While the consequences for Greece would be
devastating, the fallout for its private and official sector creditors
could be as bad or even worse, some economists say. That is increasingly
true of the official sector.

About 70% of Greece’s total debt, which amounted to E370 billion at
the end of 2011, is now owed to official creditors. While more than E100
billion of outstanding Greek debt was erased from the books in the
private sector debt exchange that closed in March, much of that was
replaced with official sector money used to fund the exchange deal.

In the case of a Greek exit, all Eurozone countries would be
immediately placed on “ratings watch negative,” Fitch has said. Europe’s
patched-together firewall would be quickly put to the test, as its
temporary bailout fund, the EFSF, would also likely face a downgrade.

As for the ECB, it and other national central banks own about E50
billion of Greek government bonds, all carried on the books at par even
though the debt trades at around 20 cents on the euro.

In addition, ECB loans to Greek banks totalled E73.4 billion in
January, with emergency liquidity assistance from the Bank of Greece
adding another E54 billion. Then there is the ECB’s Target2 system which
calculates trade imbalances amount Eurozone members. The amount owed by
the Bank of Greece to its euro counterparts is estimated to exceed E100
billion, according to economists.

Add to that the knock-on effects to the European banking system.
The Institute for International Finance estimated in March that Greek
banks owed E91 billion to foreign lenders and depositors. None of that
could be repaid after a Greek exit because Greek banks, unable to
finance themselves via the ECB, would go bust.

This would only add to the contagion effect that would very likely
be spreading to other vulnerable peripheral countries. Large-scale
banking problems in any of them would ultimately be felt by their
national governments.

“I think the official side has much more to lose than Greece,”
Gabriel Sterne, a former Bank of England and IMF official, who is now
with the fixed-income firm Exotix in London. “Would you keep deposits in
a Portuguese bank after seeing depositors in Greece get wiped out?”

Sterne said that Greece would face a “terrible financial
dislocation for a period” after a Eurozone exit. But that would
eventually be followed by an influx of foreign capital seeking solid but
distressed assets at bargain prices.

The point is that the costs of a Greek exit are not only immense
for Greece but also for the Eurozone, the ECB and other official
creditors. Talk that a Greek exit could be smoothly managed with no
collateral damage is the same kind of bluff and brinksmanship that
Tsipras, enjoying his 15 minutes of fame in Athens, is engaging in.

Greeks want to stay in the euro, but they need to see their
sacrifices producing positive results, not just more austerity.

“The Greek society wants changes, not in terms of participating in
the Eurozone but changes in the measures and in the memorandum” [of
understanding with its creditors], said Costas Panagopoulos, head of the
Athens-based polling agency ALCO. “It could be a situation of keeping
the targets but changing the mix.”

The EU made revisions in the Lisbon Treaty after Irish voters
rejected it in 2008 in a first referendum. It is giving Spain more time
to meet its budget deficit targets. After all the mistakes the troika
has made in Greece, and given is willingness to cut Athens numerous
breaks in the past, why no flexibility now?

(EuroView is an occasional column written by Market News
International editorial staff. Any views expressed are solely those of
the writer)

–Paris newsroom. +33142715540; jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,MFX$$$,M$Y$$$,M$$EC$]