The Greek Bailout and the Future of the Euro

A broad crisis has enveloped the Eurozone.  States such as Spain, France, and Ireland have seen their borrowing costs skyrocket, making it difficult to pay their debt obligations.  However, the Greek situation is by far the worst, with Greece’s acceptance of 170 billion dollars in bailout funds from the European Central Bank, largely funded by Germany.  The fear is that if Greece has a messy full scale default, Europe will go from a broad recession into an all out depression.

And yet on May 6, Greece will hold parliamentary elections which will be critical to survival of the bailout.  Basically, the austerity measures which Greece accepted as part of the bailout are required to keep the funds.  However, with over twenty percent unemployment, austerity is not popular and a fear exists that Greeks will elect a government which will roll back the austerity measures.  If the parliament does that, Greece will lose the bailout funds and the messy default scenario could occur.

It appears unlikely that New Democracy, the political party most likely to seek to maintain austerity measures, will have a large enough percentage of the votes in parliament to maintain austerity measures.  New political parties have sprung up which have vowed to stand against austerity.  As such, the future of the Eurozone and the global economy are hazy.

2 comments

  1. I am very interested to see how the May 6th elections actually pan out. I understand the unpopularity of austerity, but I have to wonder if the Greek public understands that if Greece goes through a messy default scenario, it will very likely put itself in a worse economic position than that of an “austere” Greece. My thought is that a significant portion of the Greek public think its better to take a chance with bankruptcy even though it will very likely lead to an even worse situation, rather than face a certain, but “austere” Greece. I know it really isn’t fair of me to say this as I am living my comfy existence here in the US, but I’d like to think I’d be voting for austerity if I were Greek. I’d also probably be pretty upset with the government that got my country into such a mess in the first place.

  2. It seems as though the problems in Greece just won’t go away. Every few months there is talk about the government running out of money, the EU threatening to cut off aid if an austerity package isn’t passed, and rioting in the streets if it is passed. Greece has two things going in its favor, they were the first ones to get into this mess and there is a line forming behind them. With countries like Portugal, Ireland, Italy, and Spain teetering on financial instability, everyone is paying very close attention to how the EU responds to Greece. One false move in Athens could be felt all over the Euro Zone. Keep in mind, all of the problems so far have come in terms of getting Greece the money. Makes you wonder what will happen when the “loans” come due.

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