The possibility of a bank run is a danger that Greece is facing if leftist SYRIZA wins the January 25 elections, according to a New York Times report. SYRIZA leads the polls and most likely will form a coalition government with another party. The new leftist government will have to renegotiate with the Troika of international creditors, demanding a generous debt haircut and ease the imposed austerity measures. At the same time, they promise Greeks more government spending. Analysts estimate that a SYRIZA government will eventually back down and accept the creditors’ decisions. However, until that happens, there is a serious risk that depositors might panic. Since Germany is not afraid that a Grexit will be contagious for the rest of the Eurozone, it can maintain its hard stance for a while. At the same time, Berlin is worried that if they cut Greece some slack, there might be political repercussions with Italy and France asking for the same. The report said that creditors will not agree to the debt haircut or the generous government spending so “the obvious compromise is to fix the interest rate at extremely low levels and extend the grace period before any loan has to be repaid.” If SYRIZA refuses to compromise and defaults on bailout payments, the European Central Bank (ECB) may cut liquidity to Greek banks and depositors will make a bank run. Also, since Greece has not received the bailout program’s last tranche, it may run out of funds by the end of February. If there was a bank run without a safety net, SYRIZA’s only option would be to impose capital controls. Greece will then have to beg its creditors for mercy and SYRIZA would have to bring back the drachma, the report said. A compromise is absolutely necessary. The Eurozone creditors and the moderate parts of the leftist party should work out a plan that will extend the bailout program. “After all, it is in nobody’s interest for Greece to be driven out of the euro,” the article concluded.
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