German Minister Dares Greece to Leave the Euro Zone
German Finance Minister Wolfgang Schaeuble has issued a dare to Greece to leave the euro zone after yet another attempt to form a coalition government failed on Friday. The leader of the socialist Pasok party, Evangelos Venizelos, was the third to receive a mandate to form a unity government, after last Sunday’s elections saw support for his party and the conservative New Democracy party under Antonis Samaras drastically fall. Pasok received only 13.2% of the vote; New Democracy received the greatest share of the vote, 18.9%, which was still far short of the 20 percent needed to form a government.
Radical leftist coalition Syriza won an “unprecedented” 16.8% of the vote. The party’s leader, 37-year-old Alexis Tsipras, has now twice refused to participate in a “national unity administration” with New Democracy or Pasok, on the grounds that Syriza is keeping to its election promise to reject austerity measures imposed on Greece. “It is as if the message of last Sunday’s election has not been heard,” Tsipras said, in emphasizing that his party will “not participate in a government that will enforce the policies of the memorandum,” the terms set by Greece’s creditors to keep its debt-mired, recession-plagued economy afloat.
Greece’s President Karolos Papoulias may now have no choice but to call for new elections as early as next week.
Greeks have been objecting more and more strongly to have successive rounds of austerity measures — involving higher taxes and pension cuts — imposed on them, as required by the “troika” of the International Monetary Fund, the European Union and the European Central Bank.
Politicians throughout Europe are stepping up pressure on Greece to stick to its commitment to austerity or to leave the euro zone. Even as German minister Schaeuble issued his challenge to Greece, investors and economists are strategizing what to do to save the euro should Greece indeed leave. Says Bloomberg:
The risk is if Greece leaves and the save-the-euro response flops the world economy could face a sovereign-version of Lehman Brothers Holdings Inc.’s collapse. That makes Schaeuble’s confidence sound all too similar to former U.S. Treasury Secretary Henry M. Paulson’s optimism that the U.S. financial system could withstand the 2008 loss of Lehman Brothers, only to witness the deepest global recession since World War II and a 40 percent slide in the Standard & Poor’s 500 Index in six months.
The fate of the 13-year-old euro zone hangs in the balance. The EU has given Greece billions of euros in bailout funds, aid that Greece needs to pay its maturing debt and, indeed, its bills. Greece has a 450-million-euro bond that is due this month and must still identify $14.8 billion in spending cuts for 2013 and 2014 — 5.5 percent of the country’s gross domestic product — to qualify for continue bailout funds and also complete a recapitalization of its “cash-starved banks.”
As the New York Times states, the prospect of new elections is unlikely to offer a lasting solution and might only “fuel social discontent as well as interfere” with the deadlines for, among other commitments, that multi-million euro bond.
According to a new poll reported in the center-left newspaper To Vima, if new elections are held, Syriza would win 25.5% of the vote.
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Photo of Alexis Tsipras by PIAZZA del POPULO