Eurozone map, lighter blue areas are non-Eurozone countries that use the Euro. (image: Marc Baronnet)

We’re just two days away from a consequential vote in Greece. The lack of polling over the last two weeks and the closeness of the race between the far-left, anti-austerity Syriza, and the center-right, pro-bailout New Democracy, makes the outcome a genuine question.

The Greeks themselves don’t believe the outcome will lead to a Eurozone exit; but if Syriza emerges victorious, the Eurozone leadership could basically make it impossible for them to stay. Syriza is basing their ability to renegotiate the bailout/austerity deal on the fact that Europe knows they cannot lose a member and survive without contagion and futher carnage. But you get the sense that at least the Germans have convinced themselves otherwise:

Because there has been time to prepare, some economists say, Greece’s departure from the euro will not be as much of a shock as the collapse of Lehman Brothers in 2008, which provoked a global financial crisis. Nor is it likely to be as abrupt. Even if a new Greek government eventually decided it could no longer stay in the euro union, no one expects an immediate, hasty exit.

Lehman was a surprise. But Typhoon Greece has been swirling offshore for months if not years, giving investors, governments and euro zone citizens plenty of time to batten their financial hatches.

They have drained money from Greece and put it into assets considered safe, like German or Swedish bonds. Foreign businesses with operations in Greece have been demanding payment up front from local customers, lest they later have to accept devalued drachmas. Some, like the French bank Crédit Agricole, are putting their Greek operations under quarantine to keep any infection from spreading.

I think this misses the point. A couple French banks may be safe or some foreign creditors. But the problem is that a Greek exit, probably by force, will tell depositors in the other struggling countries that they could be next. And then you’ll see the capital flows out of Spain and Portugal, and even Italy, as the bank jogs become bank runs. At a higher level, the bond yields of those troubled countries will soar since they’d face a default situation. That’s the fear of contagion.

The bigger problem is that Germany, while appearing to bend on a couple matters earlier in the week, is now talking about their “limited control of events.” Those were the words Jens Weidmann, the President of Germany’s central bank, used yesterday (“we have reached the limit of our mandate”), and so did Chancellor Angela Merkel.

“Germany’s resources are not unlimited,” Ms Merkel said, warning parliament that the eurozone crisis would dominate the agenda of next week’s G20 summit in Mexico.

In a restatement of the limits to German action in tackling the debt crisis, she reeled off a list of unacceptable demands from other countries – including the US and UK – for “big bang” solutions to solve the crisis.

They included jointly guaranteed eurozone bonds, which she described as “counter-productive” and illegal under the German constitution, as well as a publicly financed European bank deposit insurance scheme, and France’s new call for a “financial stability package” [...]

“Germany is strong, Germany is the economic engine and … the anchor of stability in Europe,” she said. Her country was “putting its strength and its power to use for the wellbeing of people, not just in Germany, but also to help European unity and the global economy. But Germany’s strength is not infinite.”

A lack of leadership while pushing Greece into a situation that will require massive leadership to contain is a recipe for disaster.