Greek voters are in for several tumultuous weeks ahead of next month's parliamentary elections as the country's "troika" of creditors – the European Union, the European Central Bank and the IMF – are sure to ratchet up pressure in hopes they can dissuade Greece from further rejecting austerity policies.
Fears of a Greek exit from the Eurozone rose after Tuesday's announcement that a working government coalition could not be formed and new elections would take place in June. Greeks have been withdrawing hundreds of millions of euros from banks in recent days as the prospect has taken on real possibility. Though the possibility still exists, there has so far been no sign of a run on bank branches in Greece cities.
Despite clamors from the financial markets, The Guardian's Simon Jenkins argues that the real 'calamity' of a Greek exit is only that it is taking much longer than necessary to realize. An exit from the Eurozone - which Simon calls a 'state without a government' - will not be painless for Greece, but will mark the beginning to the end of its current nightmare.
"Only with the decks cleared of debt can Greece, like Iceland and Argentina before it, start rebuilding its economy at a realistic rate of exchange," he writes. "One thing only is certain. A year on, Greece will be on the mend and everyone will wonder why exit took so long, and why anyone believed the fools who said it would be an inconceivable calamity."
* * *
Greece's eurozone partners are likely to spend the next few weeks ratcheting up the pressure on the country's voters to back parties prepared to stick to the spending cuts, wage reductions, tax increases and privatisation included in the austerity programme. But the economist Nouriel Roubini said he expected Syriza, which wants to "tear up the barbaric accord" to emerge victorious, leading eventually to default and exit from the euro.
Chris Beauchamp, market analyst at IG Index, said: "The reality now is that there will be elections in mid-June, and at present the anti-bailout, leftwing Syriza party is poised to win a majority.
"If it does, it is pledged to abandon most austerity measures, which would result in the halting of bailout payments and likely result in the exit of Greece from the euro. After two years, this event now seems inevitable, barring some major turnaround in the Greek political climate."
* * *
Greeks are voting with their wallets and pulling euros out of the banks in fear that their country may leave the European single currency despite the declared determination of EU powers Germany and France to keep Athens in the monetary union.
As financial markets shuddered over the deepening turmoil in Athens on Wednesday, a chorus of sceptical politicians and central bankers from London to Ottawa predicted the euro zone could fall apart soon unless European governments act more decisively to save the currency.
"It either has to make up or it is looking at a potential break-up," British Prime Minister David Cameron told parliament in London. "That is the choice they have to make, and it is a choice they cannot long put off.
Greek President Karolos Papoulias warned political leaders that citizens were withdrawing their money due to "great fear that could develop into panic" at the risk of a debt default and exit from the euro area, according to minutes of their meetings posted on the presidency's website.
The president, who tried in vain to broker a national unity government, appointed a senior judge, Panagiotis Pikrammenos, as caretaker prime minister on Wednesday until a second general election in just over a month is held on June 17.
The failure of Papoulias' talks to avert a repeat election sent judders around financial markets, hitting global share prices and other riskier assets.
Investors fled to the U.S. dollar and safe-haven German bonds while the euro lost almost a cent to fall to a four-month low below $1.27. Spanish and Italian bond yields spiked while a key index of European shares fell to its lowest level this year.
* * *
Only with the decks cleared of debt can Greece, like Iceland and Argentina before it, start rebuilding its economy at a realistic rate of exchange. One thing only is certain. A year on, Greece will be on the mend and everyone will wonder why exit took so long, and why anyone believed the fools who said it would be an inconceivable calamity.
These days only fools voluntarily leave money in Greek banks. An estimated £28bn in euro notes is said to be hidden in Greek mattresses, awaiting release into the economy via a devalued currency. There will be no recovery until this happens. The bullet must be bitten. Banks must go on holiday and come under state control, while debts are redenominated in drachmas. Lenders, savers and importers will take a mighty haircut. Many of the wrong people will suffer. But that is what happens when a country lives on tick.
Only then can this nightmare begin to end. Only with the decks cleared of debt can Greece, like Iceland and Argentina before it, start rebuilding its economy at a realistic rate of exchange. One thing only is certain. A year on, Greece will be on the mend and everyone will wonder why exit took so long, and why anyone believed the fools who said it would be an inconceivable calamity.
The delay in acknowledging this reality is the true calamity. Already the bears are gathering round Spain and Italy, not because their economies are like the Greek one but because markets can read election results as well as they can read riots. The austerities required to bring all the eurozone economies into cost equilibrium with Germany are breaking the back of democracy, and it is Greece that is distracting attention from remedies.
Voters everywhere are punishing governments for repressing demand. What cannot be raised in taxes is borrowed, sending sovereign debt back into the stratosphere. For three years finance ministers have gone cap in hand to Germany, pleading for various forms of bailout. The recent election in the German state of North Rhine-Westphalia indicates beyond doubt that such bailing out will not continue.
# # #