Absence of contagion changes whole Greek game

Wed Apr 29, 2015 2:04am EDT
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By Mike Dolan

LONDON (Reuters) - If fear of Europe-wide financial wildfire was Athens' trump card in its standoff with euro zone creditors - then the card has now turned up a dud.

The merits of ruling socialist party Syriza's demands aside, its brinkmanship in renegotiating the painful terms of its international bailout always required one key element - a financial version of the old Cold War doctrine of 'mutually assured destruction'.

A reprise of 2010/2011 would have seen any threat of Greek default or euro exit infecting markets everywhere and sending government borrowing costs across Italy, Spain, Ireland and Portugal soaring, heaping pressure on the Eurogroup to move closer to Athens' demands to prevent a systemic euro collapse.

"Whoever gets scared in this game loses," Greek Prime Minister Alexei Tsipras said this week as a three-month impasse threatens cash shortages ahead of critical debt repayments.

But the much-feared financial contagion - dubbed 'euro crisis 2.0' by forecasters at the turn of the year - has not materialized for euro zone governments sitting across the table.

And few if any investors expect the talks to be electrified by any sudden market blowout - eye-watering gyrations in local Greek markets notwithstanding. Borrowing costs across the euro zone hover near record lows, euro zone equities are within a whisker of 7-year highs and the euro currency has held in a five-cent range for two months.

That's all the more remarkable given how negative markets have turned on the outlook for Greece itself.

Almost half of all investors polled by German research group Sentix this month expect Greece to leave the single currency within 12 months, while the survey's index measuring the risk of contagion to other parts of the euro zone fell to a record low.   Continued...

A European Union flag and a Greek national flag flutter in Athens, April 24, 2015.  REUTERS/Kostas Tsironis