EU & Greek Elections: the Bigger Picture

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To many spectators current Greek elections seem decisive for the future of the EU, however this is far from the case.  Greek politics are messy with one election not having produced results and a second due this Sunday predictions suggest two likely outcomes. One is a pro-austerity measures government and the other a counter-austerity measures government.  Some fear that the second option might be detrimental to the EU as it will cause a ripple effect across markets, starting from the South and eventualy break the Eurozone and the EU.  This is far from the truth on two levels (domestic and EU) but also misses the bigger picture; the debate taking place in Europe over more or less integration with the former side gaining ground.

Firstly, on the national level, a Greek left wing coalition government does not necessarily mean the end of the EU.  One must bear into account, despite the pre-electoral discourse, whether a new Greek government (left or right wing) can actually afford to go back on the deal or re-negotiate considerable changes on the austerity package.  The Greek state has very little money in its coffers and despite talk over development the costs of running the government are still pretty high while access to development funds comes attached to changes to the structure of its economy.  Mr. Hollande adopting a more inclusive discourse in comparison to his German counterparts has managed not only to place the burden of responsibility where it lies (the Greeks) but has also left options for more development funds as long as Greece respects part of its deal.  This gives even left wing hardliners the options to argue partial implementation of the package and provide the option(s) for “negotiation” and funds while actually implementing the initial agreement. However, if we assume the worst case (domestic) scenario where a Greek government rejects the austerity-package and goes down the painful path Argentina carved out almost a decade ago this will not be the end neither of the Eurozone nor the EU.  Ripple effects are likely but Portugal has been implementing measures so have Italy, Spain and Ireland; markets will probably be kinder to them than Greece.  Even with a collapsing banking system Spain is still borrowing from markets (at high cost, nevertheless).  Moreover, money has been set aside as a back-up and Brussels (Berlin and major banks) have made contingency plans in case of a Greek exit.

The bigger picture

More importantly Greece is not where the Euro crisis lies.  The member state produces less than 3% of EU GDP while most EU banks (this includes UK banks) are mostly exposed to Italy and Spain as much as ten times the amounts they are exposed to in Greece.  Even a complete Greek burnout is not the main issue.  In order to deal with the real (much bigger) immediate problem the solution is keeping the entire EU together which would suggest sharing/ pooling risks.  A break down of either of the two countries and the break-down of the Eurozone/ EU would be detrimental for all.  Solutions such as common fiscal policy or Eurobonds which appeared non-discussable two years ago are on the agenda today; it appears that the EU is pushing for further integration.  The real question we should asking is how much further integration do we want, in which areas and what will this mean for EU/ Eurozone member state governments; at least for those that will decide to remain a part of the club.

PICTURE: European Parliament

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