The discussion of a Greek exit (Grexit) from the Eurozone is dominating the news once again. Following the victory of Syriza in the Greek election in January this year, economists and poli-cymakers in Europe have been showing growing concerns about the negotiations between the Greek Government and the Troika – the IMF, ECB and European Commission. In this context, the possible development toward a Grexit creates political and economic uncertainty in Europe. At this moment, it is difficult to forecast how the Greek crisis will develop. Will Greece stay within the Eurozone in two years, or leave behind a first precedent of exit from the Eurozone? The answer depends more on political factors than on economic ones. However, it is noteworthy to expect the following four possible scenarios; 1) Stay in the Eurozone with additional support (from the Eurozone), 2) Technical default of Greece in the Eurozone, 3) Capital controls with Eurozone membership, 4) Exit from the Eurozone.

At the very moment this article is being written, it is quite clear that both the Greek government and the Troika are seeking to realize the first scenario. However, negotiations between Greece and its creditors in Brussels are proving to be a classic game of chicken, and are creating uncertainties.

Most of Greek’s government debt is held by international public institutions and the share held by European banks is small. This suggests that Greek crisis will be less likely to cause financial turmoil in the European banking sector. The ECB’s strong commitment to dealing with the crisis and the large volume of quantitative easing (QE) underway would also work toward a positive outcome. However, the consequence of the Greek crisis is still unpredictable, and this may start a domino effect in other countries, which could destabilize an entire currency union. From Korea’s point of view, it is important that ripple effects of the Greek crisis are minimized and European economies continue to recover. Considering the trade and financial linkage between Korea and Europe, more robust growth of European economies would work in favor of Korea’s export to Europe, as it did in mid-2000s.