Renunciation of Greece’s debt by a new government?
Any lingering hopes that the euro crisis had been put to rest were brutally dashed yesterday. In the space of just a few hours on Tuesday, the Athens Stock Exchange plummeted 13% amid speculation that early Greek Presidential elections will spark renewed political turmoil. It was the largest one-day slide since December 1987; not even in 2010, when the country requested its first Troika bailout, did Greek stocks lose so much value in one day.
On Wednesday, with investors’ blood still congealing on the sidelines, the ASE slid a further 1% while yields on Greece’s benchmark ten-year bond surged back over 8%. So far on Thursday, the ASE plunged another 8%. Down 20% in three days.
The main reason for the rout: investors fear that the Greek parliament’s failure to approve a new president would trigger parliamentary elections in the nation, which returned to the bond market this year with great hoopla, after a record bailout. If elections are indeed brought forward, the anti-austerity party Syriza could well emerge the eventual victor, albeit as leader of a coalition of left-wing and centrist parties.
In the event of a Syriza victory, Greece would undertake an independent audit and restructuring of its public debt – at least that’s the plan! Given the scale and scope of corruption in the country – Greece is home to the EU’s most corrupt public sector, according to a European Commission study – who’s to say how much “odious debt” the independent auditors might find.[“Odious debt” is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation shouldn’t be enforceable. My post on this phenomenon… How Much of Our Debt Is “Odious”?].
Naturally, a massive renunciation of debt by a newly formed Greek government is unlikely to cheer investors – especially Greece’s main investor, the Troika. Hence the financial bloodbath. More worrisome still is the fact that Greece, whose economy represents just 1.5% of total EU GDP, continues to pose a threat to the economic stability of the world’s largest market, despite having received the world’s largest ever rescue package.
However, it’s not just political developments in Greece that are the problem. Across Europe, political instability is spreading like wildfire, from its Mediterranean periphery to its Teutonic core.
In Spain, the euro zone’s fourth largest economy, the two incumbent parties, the PSOE and PP, are bleeding support to Pablo Iglesias’ anti-austerity party Podemos. Like Greece, Spain is supposed to be one of Europe’s rare success stories of 2014, with expected GDP growth of over 1%. However, try telling that to most Spaniards, who, like most Greeks, have grown bone-weary of a daily diet of Troika-imposed austerity, depression-level unemployment, and an endemic culture of political corruption and impunity, while being told that everything’s on the up.
Like Syriza, Podemos proposes a thorough independent audit of the national debt. It also advocates the right to a basic income, a cap on executive salaries, increased transparency of political party funding, more stringent restrictions on political lobbying, stronger government support for SMEs and R&D-intensive industries, the creation of a national bank for investment, and the re-nationalization of strategic sectors such as telecommunications, utilities and the country’s formerly public-owned savings banks [full manifesto in Spanish].
Given the scale of betrayal of Spain’s main two political parties it’s hardly surprising that voters are looking elsewhere for inspiration – even if Podemos’ pledges are completely impracticable for a country trapped in a vast monetary union. Put simply, voters have had enough of the status quo. And not just in Spain and Greece but across the old continent.
In France it is the radical right that is in ascendance, as Marine Le Pen’s National Front continues to attract disaffected voters with a dizzying cocktail of pledges, from the scrapping of the euro to greater state control of banks and an end to Europe’s Common Agricultural Policy. According to recent polls, Le Pen would humiliate Holland in a head-to-head vote. Indeed, so afraid is Brussels of Le Pen’s election prospects that it has forestalled any actions against France’s continued flouting of the EU’s budget rules.
On Europe’s northern periphery, Sweden’s center left government is teetering on the brink of collapse just two months into office after a far-right party announced it would vote against the 2015 budget. Even in Germany, the Eurozone’s sugar-daddy economy, the political landscape is shifting, as Ambrose Evans Pritchard reports:
The rise of the eurosceptic Alternative für Deutschland (AfD) has become a credit headache for the whole Eurozone, forcing Chancellor Angela Merkel to take a tougher line in European politics and risking an entirely new phase of the crisis. “Until recently, no openly eurosceptic party in Germany has been able to galvanize opponents of European ‘bail-outs’. But this comfortable position now appears to have come to an end,” it said.
And so the slow disintegration of European political consensus continues unabated. This is not just about the rise of so-called populist parties in Europe; it is about the emergence of a massive split in how the people of two different regions of Europe perceive the continent’s future. In the South a new generation of political parties is enticing disaffected voters with the impossible dream of a new, austerity-free reality, while those who are meant to pay for it – i.e. those in the Center and North – are fast losing interest in funding the European project altogether. By Don Quijones.
In Europe, extreme wealth is not just subject to virtually no tax; it is a magnet for public funds. Read… The Smiling Face of Austerity: More Welfare for Rich Landowners in the EU