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This post was edited by desperado123 at 2012-5-16 17:21|
What's your edition to Greek's future?
As Greece careens toward another election, it's growing more likely that the country will crash out of the euro -- but it is not yet inevitable.
Europe wants Greece to uphold the 173 billion euro ($220 billion) loans-for-austerity program Athens signed only in March. But Greek parties that support the bailout plan were trounced in May 6 elections.
Opinion polls suggest pro-bailout parties will lose again in a new election, expected in mid-June after cross-party talks on forming a government collapsed on Tuesday.
Greece's rising political force -- the Coalition of the Radical Left, known as Syriza -- is winning backers with its message that the bailout is dead and Greece can stay in the euro anyway.
How will this act of the Greek drama end? A euro exit appears increasingly likely. But it isn't what most Greeks or Europe want. Other endings are also possible. Here are the four scenarios:
If a Syriza-backed government breaks with the bailout deal, Europe is likely to suspend the loans that Greece needs to run its government -- despite fears that financial panic could spread to Portugal and Spain.
For a while, Athens could make ends meet by not paying its bills to suppliers. Eventually it would run out of money to pay benefits and wages. Social unrest would likely follow.
Greece also needs billions of euros from Europe to recapitalize its banks, which would otherwise face insolvency thanks to their heavy losses on restructured Greek bonds.
European Central Bank officials warn that they wouldn't let Greece's central bank keep insolvent lenders alive by printing euros. Greece would soon be forced to print drachmas to prevent the ruin of its banks and much of its population.
Economists fear Greek citizens could anticipate these developments, stepping up their withdrawals of euros from banks to protect their savings. A fully fledged bank run would force Greece to shut the banks and revive the drachma. 'Unless there's a surprise in the election, it's increasingly looking like exit,' said David Lea, analyst at risk-consulting firm Control Risks.
Syriza's popular leader Alexis Tsipras tells Greeks the country can keep the euro even if it repudiates the bailout. His message appeals to Greeks who want to keep the currency but who resent Europe's threats.
Syriza's belief in a third way between austerity and expulsion is being encouraged by Europe's shifting political mood. In France, Italy, the Netherlands, and to some extent even in Germany, voters and politicians are increasingly critical of the effects of austerity in a downturn.
But those countries aren't dependent on rescue loans from other nations' taxpayers. The loans that Greece needs to pay pensioners and teachers won't be forthcoming if Greece suspends the overhauls of its state and economy.
Greece's pro-bailout parties might defy the opinion polls and win the election. Even they say the austerity deal they signed in March needs renegotiating.
But relaxing the austerity terms would require even-bigger loans from Europe to plug Greece's budget shortfalls. (The International Monetary Fund says it has already lent Greece as much as it can justify.) Northern Europe's creditor nations display no appetite for lending Greece more.
The original 2010 bailout had to be augmented by a 138 billion euro bailout this year because Greece was far from fixed. Another increase would struggle to get through parliaments in Germany, the Netherlands and Finland.
'We've already been much more accommodating than we ever wanted to be,' said Michael Fuchs, a lawmaker in Germany's ruling center-right coalition. 'I see no real room for maneuver.'
Greece's next government might make a show of renegotiation, and then settle for something close to the March bailout plan 'with a face-saving device,' says Anthony Livanios, an independent political consultant.
But a strong poll result for Syriza would make that tough, Mr. Livanios said. Syriza's surge is based on its call to stop and reverse austerity measures, not dilute them slightly. The limited concessions Germany might offer fall far short of what Greece's radical left would settle for.
Europe's leaders say the solution is simple: Greek politicians must stop blustering and stick to the bailout. That would require Greece to agree by midyear to another big round of austerity. Then Greece would get loans to pay for public services and social benefits and to recapitalize its banks. Greece's political backlash against the bailout has probably gone too far for that. The parties that would do it are simply too weak. 'The memorandum as signed got voted down quite clearly,' Mr. Lea said.