The problems in Europe right now revolves around
Greece. The problem, Greece is bankrupt and the
government can only pay its bills, pay its employees and pay its debts as they
come due with massive aid from the European Union, the IMF and the European
Central Bank. As a condition for
providing that funding, Europe has required that Greece destroy its economy.
The destruction is the result of an austerity program imposed on
Greece. This involved some tax increases, but mostly large
cuts in public spending and the sale of government assets. As a result Greece has massive unemployment,
its economy is contracting and the misery has spread to every part of the country. Suicides are up substantially.
Until now. In the just completed election a third party leaped into second place. The Syriza party is opposed to the austerity program imposed on
Greece and refuses to join with
the other large parties unless they also reject the austerity agreement.
Alexis Tsipras, the Syriza leader, accused the pro-euro parties of trying to blackmail Greek voters into supporting further austerity measures, saying his party would “not betray the hopes and expectations of voters who rejected the bailout”. Some 70 per cent of votes cast in the previous election went to anti-austerity parties.
But since the other two large parties are the ones who negotiated the austerity agreement in the first place, discussions to form a new government have broken down. A new election will be held on June 17.
President Karolos Papoulias, who chaired three failed meetings with political leaders in as many days, was unable to bridge differences between Syriza and the two pro-euro parties, the centre-right New Democracy and PanHellenic Socialist Movement (Pasok). A caretaker government will be chosen on Wednesday to oversee the election, expected on June 17.
Two possible outcomes appear likely. One is that the two main parties gain enough seats to form a government and affirm the austerity program. Not only is this unlikely, but the next step of the austerity program is so severe that it really cannot be implemented even if a new Greek government wanted to. The second outcome, the more likely, is that Syriza gets the most seats, get the 50 bonus seats and forms a government that rejects the agreements with
When this happens
Greece runs out of money. It probably
ditches the Euro, it likely defaults on all of its debts and creates a gargantuan
mess in Europe. Greece
itself will suffer the most, as the economy collapses, but Europe
will also be severely damaged.
Italian and Spanish benchmark 10-year bond yields also climbed, to 5.83 per cent and 6.3 per cent respectively, as investors fretted that uncertainty over
larger, more systemically important eurozone members. Greece
And no, it’s not just
As business confidence wanes and political chaos envelops the
continent a world wide recession looms, engulfing the United States. Mitt Romney must be dreaming fondly of just such a
thing as we speak.