Euro Crisis

06.10.12

Greek Elections May Force Euro Withdrawal

Greek elections have cast the euro zone into chaos, but the fates still may favor a pro-austerity candidate. Barbie Latza Nadeau says that no matter what the outcome, the euro is doomed.

With the euro zone teetering perilously on the edge of total collapse, one would think that politicians in the most critical countries would behave themselves—especially on live television. But that’s hardly the case. Last week, Greek politicos battled it out during a televised debate ahead of crucial elections June 17.  Ilias Kasidiaris, the spokesman for the neo-Nazi Golden Dawn Party, lost his temper and assaulted two female rivals as the cameras rolled. First he threw a glass of water at Rena Dorou, a representative of the popular left-leaning SYRZIA party. Then, in a fit of clearly uncontrollable rage, he punched Communist Party member Liana Kanelli three times on either side of her head.

The violence is inexcusable, but it does underscore the tension felt in some of Europe’s most volatile countries. Greek voters will head back to the polls next Sunday after a May 6 election failed to produce a definitive winner. The Greeks are essentially voting for or against austerity measures as laid out by the two front-runners. Alexis Tsipras of the SYRIZA party is banking on sentiment that Greeks have had enough of European-mandated austerity measures, even if that means abandoning the euro for a return to the drachma. His rival Antonis Samaras of New Democracy hopes instead that Greeks will do what it takes to stay in Europe. “This is not just about the euro or the drachma,” Samaras told a Greek reporter last week. “It is about Europe or the drachma.”

No matter whom the fates favor in the Greek election—if it truly is a victory to take over a country that will likely be the first domino to fall in a total European collapse—it is likely a short-term job. Neither party has the power base to stay in control for long, and Greece is nearly out of money despite two major European Union bailouts. Most analysts say the “Grexit,” or Greek exodus from the EU, is a matter of when, not if. Mario Draghi, the head of the European Central Bank, said the current euro-zone structure is “unsustainable” and called on countries that face the biggest fiscal hurdles to come forward with a better plan than what is in place now. “European leaders need to clarify what is the vision,” he said last week. “What is the euro going to look like a certain number of years from now? The sooner this is specified, the better.”

But at the rate Europe’s weaker economies are crumbling, there is no guarantee that the euro will last at all. On Saturday, Spain earned a dubious distinction as the fourth European nation to accept a European bailout when the finance minister announced that the country’s banks would accept an estimated €100 billion EU handout. Portugal, Ireland, and Greece (nicknamed the PIG nations) have also accepted bailouts, paving the way to a sort of fiscal death when it comes to the social costs extracted from the population attached to EU handouts. So far, the Spanish bailout will not stipulate any new austerity measures and instead will regulate the banking sector. But few are optimistic that the banks alone can save Spain from a similar fate to Greece’s.

With Greece going back to the polls and Spain trying to save its assets, all eyes naturally turn to Italy, largely seen as the next weakest link. Austerity measures have caused growing distrust in the interim government and anger among Italians who feel squeezed from paying taxes and cutting social benefits. A poll last week showed that more than half of the Italian population thought life was better before the euro. “There is a permanent risk of contagion, contagion from Greece, from other countries,” said Italian technocrat Prime Minister Mario Monti. “That is why strengthening the euro zone is of such collective interest.”

Panic-driven bank runs have led some financial institutions to limit daily cash withdrawals in Greece, Spain, and Italy.

In the meantime, Europeans in the Southern regions are taking extraordinary measures to protect what little they have left out of fear even that will disappear. Panic-driven bank runs have led some financial institutions to limit daily cash withdrawals in Greece, Spain, and Italy. In Spain, the exodus of $31 billion in the month of April alone is what triggered fear and led to the near collapse that led to the bailout. Some Greek banks are already limiting ATM withdrawals to less than €100 a day in cities like Athens to try to control the exodus of euros to other countries for safekeeping.

Since 2009, Greeks have been exporting some $4 million each month from Greek banks. And if Greece is forced out of the euro zone, there is no way the country will be able to avoid rationing food, oil, and health supplies. “Europe’s monetary union has entered a doom loop,” writes Niall Ferguson in this week’s Newsweek, likening the current crisis to the events of the summer of 1931, when “all over Europe, the extremists of the right and the left—fascists and communists—surged in popularity.” Is history circular? The outcome of next weekend’s Greek elections could provide the first real glimpse of whether or not the euro nations are doomed.