Jargon-watch: what is a Grexit and why is it so scary?

There has been a lot of talk of a ‘Grexit’ lately. Rory McConville explains what it is, and what it would mean for Europe.

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Greeks have had enough of austerity

Since 2012, the possibility of a Greek exit from the euro (Grexit') has loomed large.

Along with several other nations, Greece required a bailout after the 2008 financial crisis. However, while other countries have improved their economic standing over the past few years, Greece has faced consistent resistance to the imposed austerity measures.

With Berlin having grown tired of the Greek situation, and now believing that the Euro could survive the country's departure, the possibility of a Grexit has never been more likely.

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On 25 January, Greeks will go to the polls to vote in the general election. Radical left-wing party Syriza is touted to win and if so, it has promised to end Greece's punishing austerity regime which has been in place for several years. While there is no direct plan to leave the euro, this rejection of austerity would be incompatible with staying in the union.

Leading economist Barry Eichengreen believesthat if Greece leaves the euro it would set off "devastating turmoil in financial markets". The effects have already begun to be felt. Simply on the possibility of the Grexit, the euro has dropped to a nine-year low.

Of course, not everyone agrees that a Grexit would be such a bad thing. Der Spiegel reportsthat there are some in Germany who see these elections as a chance to eliminate "the weakest link" in Europe. Conversely, it points out that if Berlin were to give into Athens' demands, it could lead to a rise in similar radical parties across Europe.

For some, a Greek exit seems inevitable. At Bloomberg View,Megan McArdle writes that even if "even if Greece safely negotiates this round, it doesn't mean that Greece won't eventually exit".