Analysis | World markets braced for shock from Greek referendum

The Greek general election on January 25 looks like a referendum on the country's membership of the euro zone.

If the Greeks vote for radical left-wing Syriza and its leader Alexis Tsipras, a new anti-austerity government could eventually take the country out of the Economic and Monetary Union. Alternatively, it could catalyse a series of anti-creditor steps that may lead to Germany and the main creditor countries leaving. Either way, this will be a shock for world financial markets.

So far, there has been little contagion effect. While yields on Greek debt have shot up, spreads between long-term interest rates in Germany and the main debtor countries of Spain, Italy and France remain very low.

I do not expect that to last. Other weaker countries, led by Italy, are likely to sooner or later get sucked in, even though Greece could split itself off from the rest of the euro area with fewer repercussions than three years ago.

Private bondholders and foreign banks have largely got their money out of Greece. Greek government debt (more than 170 per cent of gross domestic product) is now overwhelmingly in the hands of European public-sector lenders, whether the European Central Bank, individual governments or the European rescue funds.

A so-called Grexit would lead to political turbulence, exchange controls and a concerted effort by the creditors to make life difficult for the Greeks, but it would not bring a run on the banks and a financial crisis. Let's be clear. Whether Greece is in or out, the Germans and the other big creditors within the EMU, led by the Netherlands, will not get their money back.

In a financial restructuring, which is what the euro area requires, everyone feels the pain. Everyone feels sorry for the debtors. No one is too worried about the creditors, especially if the largest one is Germany, generally believed to be a country big and able enough to look after itself.