BC Expert: Greek Banking Crisis
Murray and Monti Professor of Economics
Peter Ireland’s areas of research interest are macroeconomics and monetary economics, both nationally and worldwide. Widely published in financial and economic journals, Ireland is a research associate with the National Bureau of Economic Research, a member of the Shadow Open Market Committee, and part of the Federal Reserve Bank of Boston’s Research Department Academic Advisory Panel.
“Both Greece and its creditors have more to lose than gain from a default and ‘Grexit,’ so a deal to keep Greece in the Eurozone for now still appears to be the most likely outcome. Nevertheless, the politics have become so complex and the distrust on both sides so deep, that nothing can be taken for granted. Unfortunately, what we can expect is more uncertainty and more volatility, heading into the weekend and probably extending into early next week.”
“The plan now is for Greece to hold a popular referendum early next week to decide, in effect, whether the Greeks want to stay in the Euro Zone and accept the further austerity measures that their creditors demand, or whether they prefer to default on the debt outright and leave the EA. The current government prefers the latter option (default), but popular opinion seems in support of staying in the EA; so the problem is that even if the vote is to stay in the Euro Area, there will almost surely have to be new elections before negotiations begin again. The process is going to be long and messy, and unfortunately very painful for ordinary Greek citizens.
“For the US, however, the damage is likely to be minimal either way. In terms of its economy, Greece is like a medium-sized US state. Bankruptcy is certainly not good news, but it's not totally disastrous either. The majority of the Greek debt is now held by the International Monetary Fund, the European Central Bank, and the European Union, so those institutions will suffer losses but the damage is not likely to spread.
“There is uncertainty, of course, because as we all know too well at this point, financial markets and institutions are interconnected in ways that are hard to see in advance. There is always the possibility that the situation will begin to spiral out of control and affect US markets and the US economy more significantly. But, as of now, we're looking at a situation that's worst for the Greek people themselves. It is not good news for the US, but the impact on our economy is likely to be small.”
Media Note: Contact information for additional Boston College faculty sources on a range of subjects is available at: /offices/pubaf/journalist/experts.html
Office of News and Public Affairs
(617) 552-3630 (office)
(617) 943-4323 (cell)