The coverage of today’s Greek elections has taken on the kind of tone that makes normal people despair – the kind of airless, pompous atmosphere that sustains political pundits and makes it hard for the rest of us to get any oxygen. Easy Street is as bored as you are by this, so we decided to create a user-friendly guide to the Greek elections.
To tell you the truth, I can barely stand American politics. Why should I care about what’s happening in Greece?
Actually, this isn’t about politics. It is, a little. But it’s more about the global financial system.
Oh. That’s comforting. Explain?
Let’s start with Greece’s Big Decision. It’s not all riots, strikes and Molotov cocktails over there. Greek voters are deciding, in effect, whether Greece will stay in the Eurozone. Imagine if an American election could decide whether America would keep the dollar, stay in NAFTA, maintain all its trade agreements, and keep the Federal Reserve. That’s the equivalent of what’s happening in Greece right now: the country is deciding, basically, whether it wants to accept the cost of staying in the euro, or just leave the Eurozone.
And if can’t accept the cost of staying in the euro, how would it leave? Would everything collapse? Would other countries leave too, the minute they don’t like how things are going? That’s why Greece’s decision today is fraught.
Wait, is that on the ballot? “Stay in the Eurozone?”
Well, not exactly. Remember that in return for a 130 billion euro bailout payment, Greece said it would cut down its spending and accept austerity measures. Investors who owned Greek bonds agreed to take a 74% cut in the value of their holdings to help keep Greece alive. Everyone with money in Greece took some pain.
So one want to reject the deal, and the other wants to change it. It sounds like neither of those choices actually wants to stick to the bailout deal. Why?
Many Greeks feel their leaders in February were bullied into the agreement by Angela Merkel, the head of Europe’s only strong economy. To get its bailout payment, Bloomberg reported, Greece had to agree to cut 300 million euros in pension payments, lay off around 15,000 government employees, and slash its minimum wage by 20%. Greece has already been in recession for four years and is in despair at the prospect of paying its 240 billion euros in bailout money while its unemployment rate as a whole is as high as 22%.
So the Syriza party represents those Greeks who would rather bear a return to the drachma than take the indignity of these cuts at the hands of the Eurozone.
Syriza sounds like a colorless, refreshing anise-flavored aperitif that I might share with Greek friends at a wedding after smashing dishes and yelling “Opa!”
You’re probably thinking of ouzo. It’s Greece’s most popular drink, and also its most popular export. Interestingly, the biggest importer of ouzo is Germany, which buys up between 70% and 90% of Greek ouzo exports. The delight of ouzo may be the only thing the two countries can agree on.
I’ll have to try it. But back to the elections. Didn’t Greece already agree to accept these austerity measures? Why are we still talking about this?
Greece’s leaders back in February agreed, yes. And then Greeks were appalled and angry and decided to throw the bums out. So, to replace them, the country held elections on May 6. The New Democracy party won, but couldn’t form a coalition with the Socialists, who were the ones in power before.Today’s elections are supposed to decide once and for all who leads the country and, by extension, decides the fate of the Eurozone.
But Greece got itself into this mess, didn’t it? With sloppy financial management and tax evasion? I keep hearing about “lazy Greeks.”
That’s a really fraught term that a lot of Greeks despise – especially coming from their neighbors up north– and that adds to their frustration with the Eurozone. From the Greek perspective, they’re in a financial bad patch – like a lot of other countries – and it’s unfair to call them lazy overspending tax evaders, as International Monetary Fund president Christine Lagarde perhaps inadvertently did. One think-tank concluded that Greeks are not big spenders, and that “total government spending for the European Union as a whole equaled 50.7 percent of GDP, actually a bit higher than Greece. Ten of the 27 countries in the European Union spent more than Greece did in 2009.”
You keep saying Greece’s elections will “decide the fate of the Eurozone.” The Eurozone will probably survive, won’t it? I don’t think this means what you think it means.
Reasonable minds can disagree, of course. Eurozone leaders say they’re confident that the Euro will survive, but their plan B says otherwise: they’re thinking of limiting withdrawals from ATM machines in Greece and limiting travel without a visa, if Greece’s election goes the wrong way. At least one hedge-fund manager – Daniel Herro – with $1 billion invested in European banks thinks everything will be fine. But that dude is in the minority.
Most investors are fixated on the idea that Greece’s election could actually cause a worldwide financial crisis, if Greece chooses the “wrong” party. And back in February, the Institute of International Finance predicted that if Greek defaulted on a single 14.5 billion euro loan payment, it would cost $1.3 trillion in damage to the Eurozone – and that would just be a default, not a total exit. Greece’s problems could cause contagion to all the world’s banks.
More importantly, if the Greeks choose Syriza, many investors who have money in the financial markets are ready to panic. (Our handy flowchart shows how Greece’s troubles might cause a bank run and panic in the financial system.) World Bank president Robert Zoellick said that if Greek voters choose Syriza, they could set off a “Lehman moment.”
LEHMAN! GAH!
Yes, exactly.
Well, are the Greeks at least as worried as everyone else?
Yes. There’s been a “bank jog” over the past few weeks as Greeks take their money out of local bank accounts. And they’re hoarding canned food.
Mmm, I love those little bundles of rice with grape leaves wrapped around them. With chunks of spicy lamb inside? They’re so perky, I love them. Dolmades, I think they’re called. They come in cans, too.
You wouldn’t love them if you had to live on them for a few months while the financial system teetered on the brink.
Buzzkill, man. So when do we find out the results? And you said these elections were inconclusive in May. Can that happen again today?
The exit polls start coming in at around noon Eastern time on Sunday. The Greek parties could fail to form a coalition again, and then the next elections would be in July.
But, coincidentally, Greece will run out of money to pay its bills in July, the New York Times reported. So really, the Greeks cannot mess around today.
Oy.
Indeed.
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