Photo: Tilemahos_E via Flickr
Greek leaders today failed to reach an agreement on forming a new government after elections on May 6 upset the historical political hierarchy, despite attempts by the three leading parties and the Greek president to form governments.That means Greeks will return to the polls next month to vote again. While early polls continue to show anger at Germany and the austerity programs imposed by international creditors, ultimately the voting will come down to a single question:
Is the euro worth the cost of austerity?
Admittedly, economic reforms of some form will be necessary no matter what, however experts resoundingly agree that it would be easier for the Greek economy to return to growth if it was able to deflate its currency and provide goods and services to foreigners cheaply.
Early polls by Real News show leftist anti-bailout party SYRIZA currently leading the race for public opinion, with 25.5 per cent of the vote in comparison to conservative New Democracy’s 21 per cent and Socialist PASOK’s 14.6 per cent. However, such polls are often drastically wrong, and much can change ahead of the next vote.
While Greece will receive its next tranche of bailout aid this month, the disbursement of further aid is contingent upon approval of spending cuts in 2013 and 2014. Should the Greek government fail to approve such measures, it will likely face a full-scale default on its debt as early as July. At this point, it would likely be forced to leave the euro currency, given its irreverence for euro area policies and the huge losses the European public sector would stomach in the “hard” restructuring.
Support for SYRIZA has accumulated behind its rejection of any new austerity measures, and in particular the so-called “Memorandum of Understanding” signed by leaders in February to make way for approval of the second Greek bailout. The party has argued that current bailout agreements must be significantly renegotiated and that the economic reforms that have exacerbated Greece’s six-year economic downturn must be stopped.
At the same time, an overwhelming majority of Greeks still advocate membership in the euro currency. But according to EU leaders—and as German Finance Minister Wolfgang Schaeuble reiterated today—Greece will not be allowed to stay in the euro currency unless it implements its unpopular austerity program.
Thus, Europe and Greece are engaging in a high-stakes game of chicken. There is plenty of time for one side to make a concession to the other, however the opposing ideological perspectives in the Greek and German populaces suggest that one side might flinch too late.
Statements by EU leaders indicate that they are warming to the idea of a Greek exit from the eurozone, as they argue that they can contain the effects of a default on the rest of the euro system. While this very well could require stronger efforts to ensure that countries like Italy, Spain, Ireland, and Portugal do not follow in Greece’s footsteps, the diminutive size of the Greek economy suggests that Europe is not bluffing.
If EU leaders continue to make the basics of the bailout program a criterion for euro membership, then we are likely to see a dramatic shift in voter support, as Greeks consider the ramifications of defying Europe. Ultimately, this will come down to a question of whether or not it is worth it for Greece to stay in the euro, and public opinion suggests that it still might be a while before Greeks are willing to completely abandon the plan.