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Tuesday, January 6, 2015

A critical few weeks for the eurozone | Gavyn Davies

A critical few weeks for the eurozone | Gavyn Davies



"Finally, there is the thorny matter of the Greek election (well covered here by Lorenzo Bini Smaghi). So far, the markets seem surprisingly untroubled by this, except insofar as it could delay QE more generally. Investors apparently believe that the inevitable negotiations between the new Greek government and the troika on extended debt maturities will eventually succeed, without causing much contagion elsewhere.

It would obviously be very difficult for the ECB Governing Council to announce a programme of purchases of Greek debt only a few days before the possible election of a Syriza government, pledged to renounce that debt. But that problem could be mitigated by retaining the Greek bond purchases on the balance sheet of the Bank of Greece, not the ECB as a whole.
In any event, it would surely be absurd to allow the extreme problems faced by Greece to derail the monetary policy now urgently needed by the Union as a whole.

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