Greek Elections Force Germany to Weigh Austerity Endgame

Bloomberg
Editorial
May 9, 2012

Greece’s elections have confirmed its role as the worst pupil in the euro-area class. But with all respect to Paul Krugman and others, austerity isn’t dead: It’s now up to Germany to decide whether to ease up, or hold firm and watch Greece leave the euro.

The May 6 vote showed clearly that Greeks aren’t willing to accept further cuts. Almost 70 percent of voters backed political parties -- from anti-Europeans to neo-fascists -- that oppose sticking to the terms of the two bailouts since May 2010.

There’s now a high likelihood the country will miss its next deadlines under the 130 billion euro ($169 billion) program it agreed to in February. That means the European Union and other exasperated international creditors may soon have to decide whether to pull the plug, leaving Greece to default and exit the euro. Economists at Citigroup Inc. say the odds of that happening in the next 18 months are now as high as 75 percent.

The mild reaction of currency and equity markets -- outside Greece -- after Sunday’s election shouldn’t fool anyone. Letting Greece go would be a reckless gamble with the future of the single currency, risking political turmoil and unknown consequences for the European project as a whole.

More