The political turmoil in Greece over the creation of a coalition government is raising concerns anew that the country could become the first to exit the 17-nation euro currency bloc.
The Athens government avoided a eurozone exit twice in the last two years as it negotiated billions of dollars in bailouts from its European neighbors and the International Monetary Fund to avoid a default. In exchange, Greece was forced to agree to impose severe austerity measures that have drawn widespread street protests.
But in national elections last Sunday, voters overwhelmingly rejected candidates supporting the unpopular cuts in social spending. Anti-austerity political leaders are contending the country is no longer obligated to support the budget-cutting terms of the international rescue packages.
As a result, financial analysts say the inconclusive results of the election and the difficulty in forming a new government heighten the possibility the country could exit the eurozone and return to the use of its former currency, the drachma. The effects of a Greek exit from the 13-year-old currency union could spread far beyond the borders of the Mediterranean nation, leading to worldwide economic uncertainty.
One European financial analyst, Andreas Lipokow, said stock markets would fall with a Greek default and the bailouts would have proven to be pointless.
“A Greek default would certainly lead to a drop in the markets. It would also serve as an example of what happens when negotiations fail and when, in the Greek case, the outcome [the implementation of austerity measures] was taken for granted. The IMF (International Monetary Fund) and the EU have brought a bail-out package into place which in the end would [in the case of default] have had no result and achieved nothing.”
An economic analyst, Theodore Krintas, said Greece would have difficulty in financing its government if it abandons the terms of the bailouts and there would be shortages in basic commodities for its people.
“You can not reject the austerity measures for simple reasons: if you do so you are going to be abandoned by the markets, so you are going to face directly between two and a half and five billion euros of shortage in fiscal, so you will need to find a way to cover the shortage,” said Krintas. “And once you will have abandoned the measures on your own, you are going to face another problem, which is the balance of trade. Actually, there will be no one trading with you. As a result Greece will face severe problems with products of first need like food, petrol and et cetera.”
The president of the European Council, Herman Van Rompuy, says European nations must remain united and that political leaders who claim their countries can act unilaterally are not telling the truth to their countrymen.
“In order to convince European people we need to do more,” he said. “Political leaders must tell the truth, they have to say what the truth is. Populism and nationalism are not appropriate answers to challenges we face today. Those who claim that their country can be successful in going it alone are not just deluding themselves, they are lying. If we did not have Europe the cost would be inconceivably high.”