Room for compromise

6 January 2015 By Neil Unmack Follow @unmack1

The country looks set to elect a left-wing government intent on a debt haircut. Germany could not stomach that. Yet neither side will want a disorderly Grexit. If agreement can be reached on reform, financial engineering could help disguise debt reduction and save face for all.

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The German government believes the euro zone could cope with a Greek exit, Der Spiegel reported on Jan. 3, citing sources close to the administration.

Greece will hold parliamentary elections on Jan. 25. A Jan. 4 poll published by Eleftheros Typos suggested that left-wing coalition Syriza would garner 30.4 percent of the vote, ahead of current coalition leader New Democracy.

“The German government considers a eurozone exit (by Greece) to be almost inevitable if opposition leader Alexis Tsipras leads the government after the next election and abandons budgetary discipline and does not repay the country’s debts,” Der Spiegel reported on its website. Tspiras said in a Dec. 18 interview with Reuters that he aimed to cut Greek interest servicing costs to below 2 percent of GDP.

Greek three-year bond yields have risen to 13.38 percent, from 6 percent on Dec. 8, after the government’s failure to elect a new president triggered an early election.

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