Global markets shuddered overnight, as investors focused on Sunday’s Greek elections which could trigger the country’s precipitous exit from the eurozone.
Markets have been rattled by recent polls which show that the radical leftist Syriza party and the conservative New Democracy are running neck-and-neck for first place, and by reports that nervous Greeks are pulling billions of euros out of their local banks and seeking safer havens for their savings.
The Syriza party of Alexis Tsipras is threatening to tear up the harsh reforms and budget cuts imposed on the country in exchange for its latest €130 billion ($US163.5 billion) bailout. If Brussels retaliates by cutting off funding, Greece would have no choice but to default on its debts and revert to printing drachmas in order to pay pensions and public service wages.
French president Franois Hollande also weighed into the debate, urging Greeks to keep to their promises, or risk being forced out of the eurozone.
In an interview on Greek television, Hollande warned that although Greek voters must have full sovereignty, if the country gave the impression that it was walking away from its previous commitments "then there will be countries in the eurozone who will prefer to put an end to Greece being in the euro”.
He said that if Greece simply abandoned its austerity program, many would see this as a "rupture”. At the same time, he emphasised that he was pushing for Europe to put more emphasis on growth.
In an effort to boost the electoral prospects of the New Democracy party Brussels has signalled that it might be prepared to soften the terms of Greece’s bailout. According to the German business daily Financial Times Deutschland, Brussels is now prepared to take a more flexible stance that recognises that the terms of Greece’s bailout will have to be modified if the country is to remain in the eurozone.
New Democracy leader Antonis Samaras also fanned hopes that the much-detested bailout could be renegotiated overnight, saying that he believed political changes in Europe gave the country an opportunity to renegotiate its austerity program.
In his last major press conference before the election, Samaras warned that a Syriza victory "would be a recipe for disaster, it would be the exit from the eurozone... If they feel like playing poker, they should play at home. You don't gamble with Greece". Syriza immediately counter-attacked, accusing the New Democracy leader of "repeating the blackmail of the lenders".
But regardless of whether New Democracy or Syriza emerges in first place at Sunday’s election, neither party is likely to command an outright majority. This means that Greece faces the prospect of a shaky coalition government – with either New Democracy teaming up with the socialist Pasok party, or with Syriza joining forces with the small Democratic Left party,
Either way, these unstable alliances could fall apart within months as they confront the overwhelming challenges of running an economy in the grip of a vicious depression amidst growing social unrest. According to reports in the Greek media overnight, Greece now only has around €2 billion left in its coffers to pay salaries and pensions, leaving it desperate for its next injection of bailout money.
But this won’t happen until the "troika” – the European Union, the International Monetary Fund and the European Central Bank – have visited Athens and examined Greece’s progress in implementing the reforms it agreed to implement in exchange for its bailout. And the "troika” is likely to be far from impressed.
With political paralysis gripping the country, Greece has largely given up efforts to implement tough economic reforms, while tax collections have slackened, and privatisation efforts have ground to a halt.
According to the German weekly Die Zeit, this means that Greece will be in need of a third bailout in the European summer. The report says that Greece has fallen badly behind on its reforms, particularly regarding taxes and privatisations which were meant to bring in additional revenue.
As a result, it says, German deputies could be discussing a third aid plan involving "tens of billions of euros” within weeks.
Europe braces for a Hellenic hell ride
As Greek political leaders stake out their turf ahead of Sunday's election, any winning alliance faces the likelihood of collapse within months, leading to an ugly exit or a third bailout.
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