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Greece: Most Important Economic Election In Many A Year

June 16, 2012

Lots of stories making headlines this weekend, but the top two for me are the elections taking place in Egypt and Greece.  They are both extremely important, for different reasons.

While the oldest democracy is going to have to shake itself away from the flaky left that is destined to destroy Greece, the rigid military and its servants needs to be kicked aside in Egypt.

This week I read a grand piece on the turmoil in Greece, and with voting slated to start in just a few hours of the writing of this post, thought I would link my readers to what is clearly the most important economic election in many a year.

The sense of stuckness and imminent disaster radiating out from Greece has infected the entire euro zone, and anxieties from there are, in turn, stalling the global economy. Exit from the euro was supposed to be impossible; if that turns out not to be the case, what other impossibilities should we be contemplating? At the top of the list is a meltdown in Spain. The problem there is a refreshingly old-fashioned banking crisis, brought about by bad property loans. The government took over the country’s fourth-biggest bank, Bankia, on May 9th, only to have it call for a further bailout on May 25th, for a total cost of twenty-three and a half billion euros. The markets grew anxious about a full-bore crisis, and the government’s borrowing costs have, as a result, approached levels that would in effect shut Spain out of international markets. This crisis means that Spain’s banks are going to need a bailout. The fear is that, because Spain is the fourth-biggest economy in the euro zone—the thirteenth-biggest in the world—it is therefore in that nightmare version of the sweet spot where it is both too big to fail and too big to save.

The other country where the crisis has resulted in a change of government is, of course, Greece. Greeks are fond of pointing out that they invented democracy; they invented tragedy, too, and that is what their situation increasingly looks like, whoever wins the election. The problem is that in recent years they haven’t invented much of anything else. If Greece leaves the euro, the big hope for recovery would be to sell more and export more—but more of what? Greece has been described as the “richest country in the world that doesn’t make anything.” An exit from the euro, therefore, offers no magic solution. As for staying in, even if the Greeks get their amended mnimonio, the quid pro quo would surely include external control by foreign bankers and bureaucrats. That would compromise sovereignty so badly that it would be like having lost a war. Faced with these alternatives, perhaps it is no wonder that Greek voters and politicians are looking at the precipice in front of them, and starting to think that there’s only one way this ends.

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