I have no idea how the Greek election results are going to affect the repayment of Greece's debt. But here are a few things to keep in mind.
First, the debt burden is massive...for the Greeks. But the Greek economy is small. This morning on Twitter, Stephen Koukoulas reminded us that the Greek economy is half the size of the economy of NSW. A renegotiation or a default by the Greeks should not, by itself, cause widespread problems in the rest of the eurozone.
The problem with Greece, as it has always been, is contagion. If, due to problems in Greece, investors start to question the sustainability of the debt burdens of Europe's giants, we could be in trouble. This self-fulfilling questioning happened in 2011 and 2012. At that time, interest rates on Spanish and Italian debt rose. A debt burden that was sustainable at 4% interest was no longer sustainable at 7%. Everything changed when Mario Draghi said the ECB would do 'whatever it takes' to save the eurozone. For this, and other reasons, the situation now appears different to 2012. Financial markets outside of Greece have not reacted too adversely to the election result...yet.
Spain has elections due at the end of the year. If the relationship between the new Greek government and creditors breaks down, and election results in Spain mimic the Greek results, then things could get rocky again. Even if Greek debt is written off smoothly, political tensions will remain. As Zsolt Darvas, a research fellow at Brugel, a think tank, said: 'How can the Spanish or Italian prime minister tell voters that Greece has a lower interest burden than we have but we still need to give them debt forgiveness?'
The Greeks, including the election winners, want to stay in the eurozone. My guess is that Greece will stay in. An exit from the euro would be complicated and likely chaotic. Barry Eichengreen has noted that there are some parallels between the gold standard and the euro, except that the euro is harder to leave. So I have a hard time seeing how it would happen.
Photo by Flickr user Cindy Photography.