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Tuesday, May 08, 2012

Greece: New Elections Likely, Odds increase for Eurozone Exit

by Calculated Risk on 5/08/2012 03:47:00 PM

It appears no party will be able to form a coalition government, so there will be another election in June. A record large number of registered voters didn't vote in the recent election, and the outcome next month probably depends on if these people participate in June. The odds of Greece exiting the euro zone in the near term (and the euro) have clearly increased.

From the WSJ: New Election in Greece Looks Likely

Greece's political turmoil showed no signs of abating Tuesday as hopes faded that leading political parties can form a coalition government after Sunday's splintered election result, increasing the possibility that Greeks will be called back to the polls as early as next month.
At stake is Greece's ability to implement next month agreed budget cuts and overhauls it must take in order to secure continued financing from its European partners and the International Monetary Fund. Failure to do so could delay—and potentially imperil—further aid promised to Greece as part of a €130 billion ($170 billion) bailout agreed only in March, rendering the country unable to meet its obligations.
From the NY Times: Greek Leftists Rule Out Coalition With Incumbents
Greece’s post-election political and economic chaos deepened on Tuesday, when the leader of a leftist anti-austerity party that gained in the balloting ruled out a coalition with the two formerly dominant parties that had backed hugely unpopular budget cuts.

The announcement raised further doubts about the country’s future in the euro zone, as well as fears about the stability of the common currency itself.
From the Athens News: Elections 2012: Live news blog, May 8
6.24pm An article making the rounds about the Eurozone surviving without Greece can be read here. Over the past couple of days, articles such as this one have been flooding media outlets. While it is nothing that we haven't read before, it makes you wonder if we're finally reaching the point when the Eurozone will find a formula and cut their losses.
From the Athens News: Eurozone can survive without Greece
Voters' rejection of pro-bailout political parties in Sunday's election has raised the chances of Greece leaving the euro, but this unprecedented step is seen as manageable rather than catastrophic for the currency bloc.

Some banks have raised estimates of the likelihood of Greece quitting the euro. But after a year of investors shedding bonds issued by highly indebted euro zone countries and big injections of central bank cash, they said the damage could be contained.