Sunday’s elections will decide who will rule Greece for the next four years; however, under the parliamentary process, an existing government can be turned-out of office with a no-confidence vote at any virtually time. Presumably, the likely new Prime Minister would either be the charismatic left-wing Alexis Tsipras’ , or center-right incumbent Antonin Samaras’. Greeks have been suffering from the Austerity program, which has been mandated in order for it to start cleaning-up it finances.
Greece had borrowed heavily in the past and, several years ago, it sought a bail-out from “The Troika”–the European Commission, the European Central Bank and the International Monetary Fund–in order to stay afloat. It still needs to borrow more and the anticipated additional pain is weighing on the voters. Currently, the Greek National Debt is 175% of its Gross National Product. Austerity contracts an economy; however, it does not similarly reduce the Debt. So, continuation along the Austerity path would merely increase the Debt-to-GDP ratio.
There are several points, other than the outright naming of the new Prime Minister. Now, keep in mind that the average Greek, after six years of economic pain, seems to be thinking that taking a new approach–political and economically–would be beneficial. But, if Mr. Tsipras’ party wins, would he follow a less radical path than is laid-out in his party platform? If Greece leaves the Eurozone–the eighteen E.U. countries that share the common currency, the Euro–how would the Greek Debt be settled? And lastly, what message would Athens’ exit send to the other nations who are unhappy with the mandated Austerity programs and the loss of controlling their own monetary policy?
First: Mr. Tsipras says that he will increase social spending, while working on reducing the Debt and staying within the Eurozone. However, how will that suggestion play with German Chancellor Angela Merkel, who basically calls the shots on financial matters? If his ideas do not work and Greece eventually leaves the Zone, it will undoubtedly be forced to leave the E.U., its bond ratings will plummet even further and it will be ostracized by the rest of Europe. Also, assuming that his Syriza Party would have to take-on (a) coalition partner(s), how might that dilute his Agenda–either to the left or to the right?
Second: Besides Greece, Cyprus and Portugal also have taken bail-outs and, although Spain has not, a number of the Spanish banks are being propped-up. Other nations, most-notably France, the second-largest economy are also operating under Austerity mandates, as well. So, given the weak economic situation throughout Europe, what would happen? Would there be any partial forgiveness of Greek Debt if it exits the Euro, and who would join Germany in back-stopping the weaker countries’ debts?
Third: A number of long-time members of the E.U. have made no movement toward joining the Euro, and there has been talk within several of the member countries to either leave the Euro, the E.U. or both.
Whoever wins the Greek elections must realize that there is no painless way out of the Eurozone. Likewise, German and the Troika should consider the economic pain that they have been putting some of the member nations through. If one member leaves, who knows what sort of floodgate that might open, among other nations saying enough is enough. And then, Europe might eventually end-up as a patchwork quilt of member and non-member nations. Given the weak economy throughout Europe, isn’t change–perhaps a little Stimulus–called for?