Insolvent Greece is at the center of the European Financial Crisis that has led to a 20 percent devaluation of the exchange rate of the euro against the U.S. dollar. Polls indicate that in parliamentary elections on Sunday, the main leftist and center-right parties will finish one and two.
But the real action will be what the extremist communists and right-wing Golden Dawn minority parties will demand to form a majority government.
The traditional, center-right New Democracy party, led by Prime Minister Antonis Samaras, is trailing by about 7 percent to the Coalition of the Radical Left party, known as Syriza and led by Alexis Tsipras. But neither party will have the 40 percent of the vote that awards bonus seats to control 151 of the 300-seat parliament. The law then opens to of a coalition government where minority parties are the kingmakers.
Regardless of what majority is formed, Greece’s debt situation will remain at the core of the agenda of any new government, according to Stratfor Global Intelligence. The prior leadership negotiated a debt payment waiver with the European Union into February. The EU seems willing to extend Athens’s debt maturities but is not likely to grant write-downs for Greece’s debt that is 175 percent of GDP, the second highest in the world.
After six years of a bitter recession and hundreds of thousands leaving Greece in search of work, the economy will grow by about 3 percent this year and 4 percent next. But that will still leave unemployment among the working age population at about 25 percent and a third of the population living below the poverty line, according to Eurostat. Severe spending cuts in healthcare, pensions, and public services have not stopped the debt level from rising.
Greece is required to pay $25.4 billion in principal and interest on loans this year to the so called “troika” made up of eurozone countries, European Central Bank, and International Monetary Fund. This year’s schedule of payments includes $1.8 billion due in February, $2.9 billion due in March, $1.7 billion due in June, $5.2 billion due in July, and $4 billion due in August. With Greece running a $12 billion deficit in 2014, it is doubtful that they will make half of these payments.
The New Democracy defends an effort to achieve a gradual softening of European Union and International Monetary Fund-imposed austerity measures. Syriza has campaigned on forcing the troika lenders to take a debt principal haircut.
The EU agreed to restructure Greece’s debt in 2012, but Germany and Finland have rejected any new restructure. With 80 percent of Greek debt in the hands of the EU, Greece could default and reject its debt. But that might trigger a bank run “contagion” in the other members of the infamous PIIGS that include Portugal, Italy, Ireland, and Spain.
The Greek establishment and the EU politicians are both interested in some type of temporary agreement to delay a confrontation for another six months. But with extremist fringe parties on the left and right about to be the kingmaker in Greece, the European Financial Crisis could quickly metastasize into the European Debt Panic.