During the last Greek crisis, in 2011/12, many economists
believed that Greece's exit from the single currency could
trigger a Europe-wide recession. Today the assumption is that the
impact would be milder and more limited. Why do economists and
financial markets appear to be so sanguine?
The answer lies in four changes that have taken place in the
intervening two-and-a-half years.
First, the European Central Bank (ECB) and the International
Monetary Fund (IMF) have bought up huge quantities of Greek
government bonds and, by doing so, they have transferred risk from
the private sector to the public sector.
Roughly 83% of Greek government debt is now held by official
creditors; if Greece defaults on its debt most of the pain will be
felt by these creditors, not banks and private sector institutions.
This has reduced the risk that a crisis in Greece would spread into
the financial system and bond markets of other euro area
nations.
