Sunday in Athens, Monday in Madrid
AFP PHOTO/ DANI POZO
The Greek elections on 17 June seem to have absorbed the interest not only of the European and word media, but also feature high on the agenda of all European leaders. Together with the Madrid problems, the enigma of the Athens government of Monday 18 June constitute the Gordian knot the European Union has to either solve or cut in order to reassure the world that Europe will do whatever it takes to overcome its over-indebtedness problem.
Sources in Athens however are not much alarmed with the possibility of the radical left wing party, Syriza, coming first in the election but more so with the dreadful probability that no party or political coalition can form a viable government. The gridlock to the Eurozone that the Greek elections may cause was the central theme in the meeting between the French President Francois Hollande and the Italian Prime Minister Mario Monti, despite the fact that the former is facing a legislative election in France, which may create there another political limbo, if the socialist do not manage to command a legislative majority. Fortunately for the president, public opinion polls predict a comfortable win for Hollande's socialists.
Obviously it is not only Greece and Spain that are giving a hard time to European decision makers. The entire Eurozone banking industry is in precarious situation. A political dead end in Greece may trigger a bank run all over the south, that may touch even France and other EU countries.
EU member states in central Europe, like Romania, the Czech Republic and Hungary may also face problems, which could in their turn destabilise the Austrian banking system and certain lenders in Germany. And all this depend on the way the next Greek government will try to renegotiate the austerity terms which accompany the €130 billion second bailout package.
New Europe's web site wrote on 14 June, “With the Greeks withdrawing from banks up to €1 billion a day in view of Sunday's legislative election, and the rating agency Moody's downgrading Spain by three notches close to the junk region of BAA3 from A3, the Eurozone doesn't look at all healthy. The €100bn from the European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) in favour of the Spanish banks didn't convince the capital markets that the Eurozone is doing what ever it takes to avoid a major financial shake up. For one thing, if the Greeks continue to withdraw their deposits from banks after the election of 17 June or, even worse, if the tempo of those withdrawals speeds up, then the rest of the Eurozone will be at great risk. Not forgetting that it is not only the Spanish banking system which has reached the danger zone. Two of the major French banks, Credit Agricole and Societe General, have dangerously large exposures to Greece, mainly the former. And it is not only that. The Portuguese, the Irish and the Italian banking systems will also suffer from adverse developments in Greece, saying nothing about Cyprus”.
The Eurozone's banking industry in so interconnected that two major EU countries like France and Italy, which face grave problems of their own, are presently offering 40% of the packages in favour of Greece and Spain. In turn, all the major American banks are exposed in varying degrees to Eurozone values, making the western financial system almost one big skein. Turn and twist it as they may, the Americans cannot distance themselves from the Eurozone's dead ends. Despite the efforts of the major US banks to reduce their exposure to European values, they cannot insulate their balance sheets from an EU crisis. The current safe havens offered by the US and the German bonds will not last long under pressure. A European crisis will shake the entire western financial system, and through it will send the world into a new credit crunch and recession. Unfortunately this time central banks and governments are much weaker than in 2008.
In view of all that, the entire world will exercise pressure on Athens on Sunday night to at least form a government. The Eurogroup has already set a teleconference for that night night, after the results of the vote are known. One can imagine that this teleconference will attract participants from the side of the Atlantic Ocean, namely the American government and the IMF. The west wants to appear politically united and ready to contain the possible outbreaks of fire. London and Washington have said they understand that Germany cannot take it all by itself. So they will help. With the markets being very itchy, the difficult political problem has to be resolved before Monday morning. Already, Alexis Tsipras the leader of the Syriza said this week that if he wins the Greek election, he will not rush to vote in Parliament the Memorandum of Understanding, his country has signed with the troika of its creditors EU-ECB-IMF. He said he will go first to Brussels to take part in the 28 June EU summit. There he might learn something.
In any case, a good result in Athens on Sunday night will greatly support Madrid on Monday morning, even Rome, Paris, Frankfort and later on New York will feel the benevolent breeze from Greece.
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