IF fear of Europe-wide financial wildfire was Athens’ trump card in its standoff with eurozone creditors — then the card has now turned up a dud.

    The merits of ruling socialist party Syriza’s demands aside, its brinkmanship in renegotiating the painful terms of its international bailout always required one key element — a financial version of the old Cold War doctrine of “mutually assured destruction.”

    A reprise of 2010/2011 would have seen any threat of Greek default or euro exit infecting markets everywhere and sending government borrowing costs across Italy, Spain, Ireland and Portugal soaring, heaping pressure on the Eurogroup to move closer to Athens’ demands to prevent a systemic euro collapse.

    “Whoever gets scared in this game loses,” Greek Prime Minister Alexei Tsipras said this week as a three-month impasse threatens cash shortages ahead of critical debt repayments.

    But the much-feared financial contagion — dubbed “euro crisis 2.0” by forecasters at the turn of the year — has not materialized for eurozone governments sitting across the table.

    And few, if any, investors expect the talks to be electrified by any sudden market blowout — eye-watering gyrations in local Greek markets notwithstanding. Borrowing costs across the eurozone, hover, near record lows, eurozone equities are within a whisker of seven-year highs and the euro currency has held in a five-cent range for two months.

    That’s all the more remarkable given how negative markets have turned on the outlook for Greece itself.

    Almost half of all investors polled by German research group Sentix this month expect Greece to leave the single currency within 12 months, while the survey’s index measuring the risk of contagion to other parts of the eurozone fell to a record low.

    “Greece is not capable of derailing the eurozone recovery nor is there a real risk of contagion to the periphery,” reckons Wouter Sturkenboom, strategist at the US$272 billion asset manager Russell Investments.

    Most scenarios sketched by banks and fund managers still center on some progress in talks or some protracted limbo involving some limited Greek default within the zone.

    But even though exit is now a real risk, the gloomiest forecasts look mild compared with the chaos of three years ago.

    Goldman Sachs says “Grexit” — which they don’t expect to happen — could see Italian and Spanish 10-year bond premia over Germany more than trebling to as much as 400 basis points.

    That’s about 200 basis points shy of peaks hit during the winter of 2011/12. And given German 10-year borrowing rates are near zero, those spreads would imply nominal borrowing costs for Italy or Spain 300 basis points below peaks of three years ago.

    Critical is the fact that foreign private exposure to Greek assets has dwindled since the default of 2012 and the bulk of Greek debts are now owed to other euro governments, the European Central Bank and International Monetary Fund.

    But regional calm is mainly thanks to several euro-wide emergency firewalls - such as the European Central Bank’s Outright Monetary Transactions or the European Stability Mechanism - built painstakingly over the past four years.

    Chief among them is the trillion euro bond buying, or “quantitative easing” program launched just last month. (SD-Agencies)