The Next Step in the Cataclysmic Disaster That is Europe Will Take Place on June 17 – Greece to Vote to Unambiguously Reject German Imposed Austerity

Everybody Watch the Train Slowly Go Off the Cliff

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.

Greece is a parliamentary country.  The 300 seat legislature elects the Prime Minister.  Because there are more than two parties, a coalition government is required.  To cut down on the influence of small parties, the party with the largest representation is awarded a bonus of 50 seats.  The two largest parties in Greece are a center right party and a center left party.  They have always formed the government since Greece returned to a democracy.

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 Europe.

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 Greece could infect larger, more systemically important eurozone members.

Germany, who is the prime mover in this policy of destruction is going to learn that as an export economy when its customer cannot pay their bills they buy less rather than more.  In fact everybody gets a lesson here, just not one anybody wanted to have to learn.

And no, it’s not just Europe.  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.