May 7th, 2012
04:12 PM GMT
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London (CNN) – So far, the markets have taken the elections in Greece and France in stride. And why not? What has changed?

France helped broker the so-called Fiscal Compact, which is at the heart of closer integration in Europe. Does France now want to pull away from the eurozone and allow Germany to take all the decisions? Of course President-elect Francois Hollande would not want that.

Sure, there may be some tinkering at the edges and fancy words out of Brussels about growth, but to open up all the talks again would surely be painful, and frankly, dangerous to Europe’s economy.

Last year, I sat for many, many (many) hours in Brussels waiting for word on bailouts and budget deficits and fiscal rectitude. I don’t think European leaders have the stomach to go through another painful 12 months again. The markets would not like it, even if many voters would. Austerity is a dirty word, but what is the alternative?

Remember not all eurozone countries have to sign up to the fiscal compact for it to go forward: only 12 are needed to bring it into force on January 1, 2013, although not having Europe’s second biggest country in there would be embarrassing and give it fewer teeth.

As for Greece, let’s wait and see what kind of coalition is cobbled together in Athens. One has to be formed, even if takes weeks –or another election in June. But one will be formed and two of the parties in that future coalition have already agreed to the austerity package. PASOK and New Democracy are one or two seats short of a majority.

Again, what choice do they have? Greece cannot pay its bills and signed up to the tough measures to get that second bailout. They get the next tranche of that money in June, when Athens has to lay out future cuts, based on cold, hard facts and figures. A third bailout is probably not far behind, as long as Athens continues to take steps to cut spending.

Can Greece get some breathing room from Berlin and the IMF? Sure. Will the bond markets be happy about it? Sure. Markets moved beyond Greece months ago and may leave Greece to work out some wiggle room to get a new government. Anyway, there are bigger fish to worry about – Spain for one.

For Greece to become front and center again in the minds of the markets would, in my mind, be a dangerous step. But remember, Greece wants to stay in the European Union and still use the euro. All the parties, even the fringe elements, have stuck to that line.

Greece could eventually fall out of the euro. Even though there is no mechanism to do it, analysts from Citibank now give that scenario a 50-75% chance of happening in the next 12 to 18 months. No one thinks it will happen next week or next month.

Could the markets have a tough summer? You bet. Could Greece become the spark for another euro crisis? Let us really, really hope not. In the past year, the Greeks have missed austerity deadlines and there have been long nights of negotiations and fears of bankruptcy.

But let’s give the Greek people some credit and time to sort out their mess and form a new government.

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Filed under: European UnionGreeceRecession


soundoff (25 Responses)
  1. Mogotsi Mpshane

    I personaly beleive that the western world is being destroyed from the inside by financial terrorists. People who crash economies and then buy them up to ensure their domination.

    May 8, 2012 at 9:11 am |
  2. mauro cancian

    Where is Iceland in this article? They showed us the solution!

    May 8, 2012 at 10:14 am |
  3. jacob schonberg

    The alternative is to make a policy that activily create jobs and solve problems. 1 more money to start new business because nearly all new jobs are created in companies less than 5 years old. 2 finance to tear down old buildings and building new when the new building use very little energy (passive houses. Energy is saved, good houses build and many new jobs created. Many greetings from Jacob Schonberg, danish but now living in Poland and Ukraine

    May 8, 2012 at 10:27 am |
  4. tommyxan

    Look to the Great Depression for the answer. The Hoover government's reactionary policies of austerity only exacerbated the crisis and required Roosevelt'sNew Deal of massive public works and large-scale social employment to finally bring the economy out of depression. Unfortunately, the financial regulations and authority of the SEC imposed in the aftermath of the Great Depression were largely gutted by the GWBush administration, which not only permitted but actively participated in the greedy feeding frenzy that precipitated the crisis and which undermined the ability of the SEC to effectively regulate these Wild-West markets.

    "Those who cannot remember the past are condemned to repeat it" G. Santayana
    see also http://en.wikipedia.org/wiki/Keynesian_economics

    May 8, 2012 at 11:38 am |
  5. Beelzebub

    "Deal of massive public works and large-scale social employment to finally bring the economy out of depression. "

    That is not the way it happened. The CCC, WPA, TVA, and other make-work programs prevented food riots and kept a socialist revolution from happening. World War 2 ended the depression both by creating war jobs and by lowering unemployment by reducing the number of people in the global workforce. (By killing them)

    May 8, 2012 at 12:38 pm |
  6. Johnny Cash

    THERE ARE MANY ALTERNATIVES TO AUSTERITY:

    Greece could LEAVE the EURO
    They never fullfilled the convergence criteria and never will.
    CUT LOOSE, Print their own money.

    The Rich people in Greece do not pay any taxes
    ENFORCE A FAIR TAX SYSTEM where tax is collected from ALL the people not just the poor, the working class and the middle class

    The pension system is to generous
    RAISE THE PENSION AGE to get a full pension to 65 or 67 – SIMPLE.

    INVESTS in areas that will stimulate growth and create jobs
    Education, Research, Green Energy, Tourism,...

    So yes there is an alternative to take money from the poor to pay the banks who profited enormously on this crisis that they took an active part in creating

    May 8, 2012 at 12:47 pm |
  7. hachimada

    There is no alternative.

    They can leave the Euro and print more money. But the money will soon be as worth as toilet paper.
    They can raise tax for the rich, but the rich can move out quickly.
    They can change the pension system, good, that wont have effects within 10 years.
    They can invest in green technology. Wait, they don't have any money.

    The simple truth is that they live on what they don't have. Everyone need to make sacrifice, as everyone is responsible for what happen today in Greece.

    May 8, 2012 at 1:15 pm |
  8. Johnny Cash

    THERE ARE MANY ALTERNATIVES TO AUSTERITY:

    Greece COULD AND SHOULD LEAVE the EURO
    They never fullfilled the convergence criteria and never will.
    If the print to much money their OWN currency will be worth less but they would export more.
    Printing their OWN money to solve their OWN crisis would be the FAIR and RIGHT thing to do.

    The poor rich people, so fragile, and always so afraid of paying the same tax rate as the rest of the people.
    There is NO enforcement to make people pay their FAIR SHARE of taxes.
    If the very rich pay NO taxes, what difference would it make if they moved...

    The pension system is to generous
    Pension age could be increased to 67 starting tomorrow, if that decisions was made,

    Money or no money, they HAVE TO INVEST for growth.
    If they get no growth they will no get out of their mess EVER.
    If people have jobs, they pay taxes and many of these investments will in the end pay for themselves by reducing payments of unemployments benefits and instead getting taxes paid into the government.

    We all live on what we do not have, most countries owe debt and over spend, but by CUTTING everything that will create and stimulate future growth of the economy you are committing economic suicide.

    You can not starve yourself to growth

    To massive cuts will create mass unemployment, and less money to the state, a shrinking economy and unrest and political uprising.

    There are many alternative to the so called austerity measures which for some reason only takes money from the weak and poor groups in society while leaving the rest untouched.
    And all this is to pay the banks who profited enormously on this crisis that took an active part in creating the financial meltdown.

    May 8, 2012 at 1:36 pm |
  9. DaLe

    i think in two days i will sign off from job center and go live back to under the open sky. That should save several hundreds Euro a month i think.

    May 8, 2012 at 2:45 pm |
  10. Alex Povolotski

    The alternative to austerity is total freedom. But people forgot what it is to be free and are afraid of total freedom because they don't know what to do with it :-)

    May 8, 2012 at 2:46 pm |
  11. Rob Ross

    On the one hand he says. 'give the greeks some credit (respect?), and on the other he says that there are 'bigger fish to fry'. If I were Greek I'd be calling him a double-dealing blabber mouth and, seeing that I'm not, I'd call him a bankers' waffling mouthpiece. Give people enough rope and they will hang themselves. Have you ever heard such patronising crap?

    May 8, 2012 at 2:59 pm |
  12. frenchjr25

    Debt forgiveness is the only solution to the worlds current economic problems. We then need to look at restructuring the financial system to that it is simple and makes sense. At the same time we need to scrap the current system for figuring out interest rates and go with a simple rate based on the entire loan instead of the current model where the amount owed in interest changes constantly depending on how much you owe. Knowing that the interest rate on a loan is based solely on the amount of the loan and that the interest cost will never increase will help stabilize our financial system. (example would be a $300,000 loan with a 30% interest rate would cost a total of $390,000, no more and no less. Over a thirty year period you know that each monthly payment would be no more and no less than $1,083.33. Would make it easier for everyone and guarantee that far more loans get repaid).

    May 8, 2012 at 3:25 pm |
  13. Kme

    No matter how much you give an over-spender, he will spend it all and borrow until he cant make the payments.

    May 8, 2012 at 3:46 pm |
  14. jaysonrex

    HUNGER!

    May 8, 2012 at 4:08 pm |
  15. Bill K.

    Oh dear. What is to be done.

    I don't know. The whole thing in Greece was a fraud conducted by Greek politicians with the advice and consent of Lehman Brothers when Greece went into the Euro zone. Take it out of their hides.

    The whole zone is just going to have to eat this debt. Which it could easily do with a devalued Euro.

    My pet theory? This was all done on purpose; knowing Greece would teeter into default. Then all these few and powerful rich people could swoop in and steal all the public services and works that would "inevitably" have to be sold off at bargain basement prices.

    What *really" needs to be done is the guillotine. Simple as.

    May 8, 2012 at 9:07 pm |
  16. Rob

    Well said Johnny Cash!!! I couldnt agree with your more. The rich are selling Austerity to the poor. Has anyone seen the Greek bond rate... 22% versus Germany which is less than 2%. Greece will never get out of this with that going on. Just drop out of the Euro. Maybe Greece can learn a little from how Iceland is handling their situation. They seem to be doing pretty good taking care of their people instead of the banks.

    May 8, 2012 at 9:10 pm |
  17. Mike Smoh

    The alternative is very simple. Go defunct. Argentina did it and they are thriving now.
    Will the markets like it? No. But this will teach banks a lesson they need to learn and that is to not lend money to countries that can't afford it thinking that the tax payers will bail them out.

    May 8, 2012 at 10:08 pm |
  18. observer

    The only alternative to austerity is inflation. Of course, the quality of life (at least the economic part of it) will suffer just as well, perhaps even more...but people usually like to have more and more money every day. The Germans are the only ones who know very well that printing money does not solve anything, but all the rest of Europe seems to drift towards inflation.

    May 9, 2012 at 11:18 pm |
  19. mayflower

    Puh-lease! No more bleating that Roosevelt pulled us out of the Great Depression. He did not. Roosevelt spent a lot of money making it look like he was doing something. Private sector manufacturing brought on by WWII brought us out. I will never say there is no such thing as corporate corruption, but those who rant about it often forget that the only group more corrupt that these few evil corruptions is the government itself.

    Also? This article is very poorly written.

    May 11, 2012 at 4:41 pm |
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    May 16, 2012 at 10:26 am |
  21. conrad

    Time to pull off the band-aid and exit the euro. They'll recover ... we all will.

    May 16, 2012 at 11:42 pm |
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