Fariborz Moshirian

The latest developments in the Greek crisis make it clear that there is no easy answer. Financial markets and European banks are preparing for Greece to leave the 17-member euro bloc, with the ongoing struggle to form a coalition government weighing heavily on global equity and currency markets.

The inability to form a coalition government has pushed the country closer to a costly and tumultuous exit from the euro zone. If you had asked me even a few months ago, I would have said this wasn’t a possibility, but now eurozone policymakers are ready for it, the banking system is ready for it, and the market has priced in this possibility, so it’s not going to be as bad as it would have been last year, when the possibility of one country leaving the eurozone was going to lead to a major catastrophic event. It will no longer be a disaster, but it will still be uncomfortable, particularly for Greece, which may well end up to be worse off if it exits from the Euro-zone to avoid some of the austerity measures and badly needed restructuring work.

Perhaps the Euro-zone leaders should think about policy measures other than austerity to generate economic growth and encourage private sector investment?

The parties have until Thursday to try and reach a consensus: if they don’t, there are likely to be new elections which could result in European Union officials cancelling loans required to stave off bankruptcy, forcing Greece’s ejection from the single currency.

European policymakers have worked hard to ring-fence Greece from the rest of the region and contain any fallout from its political instability – now, they are ready for what was considered the worst possible scenario. However if there is an exit, this will cause further turmoil on the world’s financial markets.

The Australian dollar is struggling to maintain parity with the United States dollar as investors return their money to safe-haven currencies amid fears Greece will exit the eurozone.

There’s is now a return to an aversion to risk in global markets, with our currency dipping below parity – the first time it has done so since December, when the collapse of the eurozone also appeared likely. Now, it looks as if it is heading towards 98 cents by the end of the week – and maybe even lower than that if there is no resolution to Greece’s political impasse.

Professor Fariborz Moshirian is the Director of the Institute of Global Finance at the Australian School of Business.