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The most important election of the year isn’t taking place on Nov 6, 2012. It’s taking place this Sunday, in a broken nation thousands of miles away. It’s being undertaken by a frightened and frustrated people who have the potential to send the entire world economy into a tailspin.
The mulligan election in Greece will be the second attempt to form a government in as many months. Greece is suffering through an economic crisis the likes of which a modern developed country has never seen. As much as certain Greek political parties dispute the characterization, the world has framed Sunday’s election as a referendum on Greece’s continued participation in the eurozone.
If any analyst claims to definitively know what the outcome of the election will be or what impact any election outcome will have, they’re lying. Uncertainty is the new Zeus, holding dominion over the entire landscape.
How did we get here?
The Greek government has committed many sins over many decades. However, while incompetence and corruption have exacerbated Greece’s dire economic situation, they are not its sole cause. Greece’s weakened state made it far more susceptible to the global recession, and as a result Greece became the first nation to truly feel the brute force of a worldwide economic downturn. With no leadership to guide Greece forward, and with international players far more interested in European bank stabilization than stabilizing a society that gave birth to democracy, Greece’s present state is not surprising.
Greece’s last election was held on May 6. The pro-bailout and conservative New Democracy gained the most votes, while the second-place showing of a relatively new political party, the Coalition of the Radical Left (Syriza), shocked the world. Syriza ran on an explicit anti-bailout, anti-austerity platform and skyrocketed to second place.
However, neither party won enough votes to govern by majority, so a coalition government was the only option. Despite repeated attempts to form such a government, the parties could not come to an agreement (imagine Democrats, Republican and Green Party leaders trying to come up with a common policy platform). Sunday’s election is a second bite at the proverbial apple.
Why hasn’t the Greek bailout worked?
Despite implementing draconian austerity measures, Greece is still neck-deep in a years-long recession. But the bailout did, from one perspective, work. Yes, unemployment among youth is over 50 percent, nearly 1 in 3 Greeks are living in poverty or damn near close to it, and 1 in 5 young Greeks plan to flee the barren wasteland that is the current Greek employment landscape. Yes, families are expected to live on just hundreds of euros a month. And yes, standards of living have plummeted while the cost of living skyrockets. The rate of suicides is alarming, homeless shelters are overcrowded, the Greek government is in tatters, tourism is down and extremism is rising.
Greece has been beaten down into a bloody heap of a broken society crumbled at the bottom of what Germany has affectionately labeled a “bottomless pit,” but saving Greece wasn’t the goal of “aiding Greece.” Containing her was, and the news over the last few weeks demonstrates that in that respect—when the austerity-only bailout program is viewed not as a lifesaver but as a European tourniquet to isolate a wounded sovereign appendage—the bailout program was a wild success.
One need only look at a recent New York Times analysis to see the true nature of the “Greek” bailout (emphasis added):
Its membership in the euro currency union hanging in the balance, Greece continues to receive billions of euros in emergency assistance from a so-called troika of lenders overseeing its bailout.
But almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the troika’s pockets. [...]
As they pay themselves, though, the troika members are also withholding other funds intended to keep the Greek government in operation. [...] In an elaborate payment system that began after the May 6 election that brought down the Greek government and is meant to ensure that the Greeks do not touch the cash, the big three creditors are now wiring bailout payments to an escrow account in Greece. There the money sits for two or three days — before much of it is sent back to the troika as interest payments on the Greek bonds that Europe accepted under terms of the bailout deal struck in February.
Floyd Norris earlier this year stated it point blank: “Europe is prepared to pay what it needs to pay to save its banks. But not to rescue Greece.”
Bloomberg crunched the numbers and found that “Europe’s taxpayers have provided as much financial support to Germany as they have to Greece,” primarily because “Germany’s banks were Greece’s enablers,” and thus stand to benefit the most from an almost exclusive focus on debt service.
You may hear from some circles that more than enough money has been thrown at Greece, with 115 Marshall Plans, claims one analyst. However, when you realize that almost none of that financial assistance has gone to stimulating Greece’s economy and when you acknowledge the fact that the massive transfusion of cash was used primarily for debt service, you can understand why Greeks are so incredibly frustrated and why they demand a true pro-growth program.
How is all this going to affect the United States?
Imagine the relationship between the United States and Europe as a twisted game of cat’s cradle where fates are intertwined. Europe is one of the largest buyers of American services and exports, devouring more than 20 percent of what we export. Our financial system and Europe’s, both dominated by international banking behemoths, share lifeblood in the form of loans, investments, and bond exposure. Our stock market sighs or smiles on issues like the probability of a Greek exit. Last month’s election resulted in a slight dip and rebound the day after the Greek election after it became clear the conservative and pro-bailout, pro-austerity New Democracy took the lead. How markets will react to a possible win by the anti-austerity and anti-bailout Syriza party is unknown.
Last fall, President Obama stressed that “if Europe is weak, if Europe is not growing, as our largest trading partner, that’s going to have an impact on our businesses and our ability to create jobs here.” Just weeks ago, he held a press conference, emphasizing that “it is in everybody’s interest for Greece to remain in the eurozone while respecting its commitments to reform.” The president also accurately stated that the U.S. jobs market is facing strong European headwinds.
As part of my role as managing director of a new Greek American advocacy organization, I’ve spent the better part of a year educating people in the United States on the need to pay attention to the Greek crisis. Only recently, with events seemingly hurtling toward an unknown endgame, are we seeing the type of analysis that paints the stark and bleak picture before us:
“The possibility is now very real that a double-dip recession in Europe could kill off hopes of a sustained recover in the United States…Slower growth and higher employment can only hurt his chances in an already very tight race with Mitt Romney.”
“Scariest sentence I’ve read today? Oh, that’s easy: “Because there has been time to prepare, some economists say, Greece’s departure from the euro will not be as much of a shock as the collapse of Lehman Brothers in 2008, which provoked a global financial crisis.”
That’s from Jack Ewing and Paul Geitner in the New York Times, and it’s enough to ruin your Friday morning: “Some economists say” a Greek departure wouldn’t be as bad “as the collapse of Lehman Brothers in 2008, which provoked a global financial crisis”? Yeesh. That’s like some bomb units say they can get the vest off of you without it going “BOOM.”
As is the case in every election, the sitting president will get credit or blame for what happens on his watch. If the economic numbers are being dragged down by events in Europe and the resentful rebellion of the Greeks, voters will punish the man in the White House.
While nobody has a clear idea of how a breakup of the euro would affect the American economy, it would hurt. Citizens of vulnerable European countries would rush to withdraw their euro deposits ahead of the breakup, to avoid having their savings converted into pesetas or drachmas. Banks would fail, and financial markets would plummet as investors took their money out of risky assets and put them into the comparative safety of German bunds and American Treasury bonds.
This would very likely cripple some big American banks. And a stock market crash would wipe out the savings of many ordinary citizens. Exports to Europe would slow sharply as European economies contracted — depriving the United States of one of its few engines of growth.
Look at it this way: When Lehman Brothers went bankrupt in 2008, sending the global financial system into a tailspin, its debts amounted to about $600 billion. Government debt alone in Greece, Spain, Portugal and Ireland — the most vulnerable European countries — adds up to about $1.9 trillion. And the economies and government finances of most developed countries are in worse shape than they were four years ago.
In short, the Greek crisis is a European crisis and a European is a world crisis. If there was any political and economic situation where the butterfly effect metaphor was appropriate, this would be it. A Greek citizen in a voting booth in Greece on Sunday can check a box and possibly impact markets a continent away.
The paradox is that the fate of all actors in this global drama are determined by multiple external forces. Europe waits helplessly with bated breath to see how Greeks will vote, wondering if their economic union will crumble under the weight of an electorate burdened with poverty, lack of leadership and dysfunction. Greek voters will have their say on Sunday, but how Europe and worldwide markets will react to that election is out of their control. The United States, meanwhile, sits on the sideless girding itself for the headwinds that will rush across the Atlantic. The most powerful man in the world will sit powerless, waiting to see what chain of events will be triggered by Sunday’s vote, wondering how it will affect this nation and his campaign.
Absent eras when wars are front page news, foreign policy and foreign affairs are usually relegated to the back burner during American election cycles, especially when domestic matters like massive unemployment and lack of strong growth are in play. This cycle, however, foreign affairs and domestic economic policy are two sides of the same coin.
In Greek mythology, a troika of creatures, the Moirai, or Fates, controlled the destiny of each life. Clotho the Spinner would spin the thread of life, Lahesis would measure the thread and count out how much life would be given, and Atropos would cut the thread when she deemed a life ready to end.
It’s a testament to the interwoven fabric of our international financial system that the slow death of one democracy can tug at the health of another. Whatever the fate of Greece and Europe may be, America will experience it and suffer through it—as will both presidential campaigns.Back to top