As Greeks Head to Polls Again, a Fear That No One Will Win

Greeks head to the polls on Sunday for second time in two months with a pervasive sense of dread any government that comes to power will fail to resolve the political and economic turmoil that threatens the country’s future and the financial stability of Europe itself. If the establishment center-right party New Democracy ekes out a victory in a race polls show as tight, Greece still faces weeks or months of negotiations with European lenders over terms of its austerity program, which all parties agree are too onerous to enforce on its rapidly shrinking economy. A victory by the leftist party Syriza promises a more serious confrontation, especially with Germany, over how and perhaps whether, to keep Greece in eurozone. The winner will also face an uphill battle to inject confidence into a paralyzed economy that depends heavily on the continued infusion of money by the European Central Bank. The Frankfurt-based bank has become the last lifeline for a financial system that has all but seized up and a deficit-ridden government that has little ability to raise new revenues or borrow money to continue its operations. On Monday, as Greece tries to determine whether it has a viable new government, leaders of G20 group of developed and emerging economies will gather in Mexico, where they are expected to debate ways to keep the Greek crisis and the weakness of the bigger economies of Spain and Italy from undermining the euro and dragging the global economy into a new recession. Central bankers from Tokyo to Washington have already pledged to intervene in financial markets if necessary to shore up those economies, but the Greek drama nonetheless threatens to keep investors on edge for weeks. “I would be very surprised if, ta-da!, everything is clear,” said Peter Westaway, chief economist for Europe at Vanguard Asset Management. “We could be in for a protracted period of uncertainty, which would not be helpful, either.” If, as in the May elections, there is no clear winner, political leaders have said they are committed to forming a government no matter what. In any event the new government will have to open new talks with the big European powers and press for a more generous bailout. “They will be sitting around the table with each other, and then some compromises can be struck,” Mr. Westaway said. There is no mechanism to kick Greece out of euro, and the 2 leading candidates say they have no intention of taking Greece out voluntarily. Greece could be forced to fend for itself if the European Central Bank decides that it is a fool’s errand to keep replenishing Greek banks that have no collateral or credibility. But the bank’s job is to protect the euro, and it has repeatedly argued that contagion from an exit by Greece could outweigh the costs of keeping it afloat. “It’s in the hands of ECB, and ECB doesn’t want to be responsible,” said Simon Tilford, chief economist for London-based Center for European Reform. “ECB will come under great pressure to rein in support for Greek banking system, but the bank is quite concerned about implications and risks of contagion if a country leaves the euro” (…..)



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One Response to As Greeks Head to Polls Again, a Fear That No One Will Win

  1. Professor Uziel Nogueira says: Greece’s exit of the euro zone is neither the end of the common currency nor a threat to the world financial system. However, it will bring (important) consequence for the 17 members of the euro zone and the 27 members of the EU. First, the euro is NOT an entitlement currency bringing prosperity to all. Highly indebted countries now find out the downside of it. Spain is in the eye of the financial hurricane to be followed by Italy. Second, Greece’s exit will STRENGTH the euro because it eliminates a weak economic link among the 17 member countries.Fewer countries make monetary and fiscal convergence less complicated to achieve. Third, the crisis has no (favorable) short term solution for countries in trouble. The more money is trowing into the financial game — now at $ 500 billion euros rescue fund– the longer the debt trap crisis keeps going. Germany has the last word.


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