- Posted May 8, 2012 by
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Greece Election May Be End Catalyst of Euro Zone
Sunday's rejection by Greeks of austerity measures and the 2 dominant political parties in the Aegean nation coupled with the inability to form a coalition government may be the catalyst that ignites the implosion and death of the Euro Zone.
Germany, the powerhouse and stabilizer of the EU, is already signaling it has had enough of what the nation sees as the antics of a petulant child in Greece's headlong rush to economic ruin. The German state remains cautious, but skeptical as well of what the election of Socialist Francois Hollande as President of France and rejection of conservative Nicolas Sarkozy will do to the EU economy.
Greece teetered on the verge of political chaos on Monday, with few signs that any party could form a governing coalition and the prospect of the nation leaving the eurozone looming increasingly large.
The political tumult showed that "it's not clear how they can survive within the euro over the longer term," said Kenneth S. Rogoff, a professor of economics at Harvard and a former chief economist at the International Monetary Fund.
"A Greek exit," Rogoff said, "would underscore that there's no realistic long-term plan for Europe, and it would lead to a chaotic endgame for the rest of the eurozone."
"Greece is lurking as a problem, not so much because it could leave the euro and tear things apart, but because it could before that default and trigger financial events that could cause the crisis to spread," said Carl Weinberg, the chief economist at High Frequency Economics, a financial research group in Valhalla, N.Y.
Greece appears to be sinking ever further into a political quagmire after a first push to form a new coalition government failed on Monday, just one day after outraged voters chastened the parties that have supported the country's bailout and austerity measures.
Sunday's election results revealed clear anti-austerity sentiments from voters, who toppled the two main parties that have dominated Greek politics for some four decades, the conservative New Democracy and socialist PASOK. Instead, many Greeks voted for smaller, more extreme, parties that oppose the strict requirements levied by the European Union and International Monetary Fund in exchange for bailouts.
Observers believe there is little chance of any of the parties being able to put together a viable coalition government, meaning that new elections may become necessary.
"Of course the most important thing is that the programs we agreed with Greece are continued," German Chancellor Angela Merkel said on Monday.
According to European Commission spokesman Amadeu Altafaj Tardio, solidarity with Greece is a "two-way street," and the country must strive for "full and timely implementation" of its agreement with creditors.
Meanwhile Greece's financial situation continues to deteriorate. In its fifth year of recession, with unemployment over 20 percent, the country has agreed to implement tough new austerity measures in June. It is also scheduled to receive its next tranche of aid in May, which the IMF is already threatening not to pay. But without that money, Greece may have to default on its debts and possibly leave the euro zone.
German commentators on Tuesday predict tough times ahead.
US markets are also taking notice of the instability in Europe. The Dow dropped nearly 200 points today before rebounding back to close at 76 points down.
From the Cornfield, with the US of A being the EU's largest trading partner, what will a break-up of the EU as it is plunged into economic chaos mean to the fragile US economy?
What will a Greek default and 180 degree turn around in France mean to the upcoming presidential election in the US?