The talks in Greece to form a new coalition government failed earlier today. An interim government will be created, but the country will face new national elections in the mid-June timeframe as the Greek fiscal crisis continues to escalate.
Polls show the leftist Syriza party, which rejects the bailout and placed second in last week’s vote, is now on course to win, a result that would give it an automatic bonus of 50 seats in the 300-seat parliament. The conservative New Democracy party won the May 6 election, but only received 18.9 per cent of the vote as angry voters scattered to smaller parties.
New economic growth figures released Tuesday revealed the extent of Greece’s ongoing crisis. The country’s economic output slowed by 6.2 per cent in the first quarter of 2012, compared with the first three months of 2011, according to the Greek Statistical Authority.
European leaders say that they will cut off funding for Greece if it rejects the bailout agreed in March, which would mean bankruptcy and all but certain exit from the European single currency.
It seems far more likely that Greece will leave the Eurozone because of the impasse between the need, as stipulated by the EU, ECB, and IMF, for major austerity steps (reduced government spending and reduced government entitlements) to be honored as part of the over $140 billion bailout that Greece received earlier this year.
The failure of the talks weakens already ebbing confidence in Greece’s ability to remain in the euro.
On Monday, German Chancellor Angela Merkel warned Greece may be forced to leave the single currency if it refused to implement spending cuts agreed with the European Union. Syriza has already said it will not subject Greece to such cutbacks.
One outgoing Greek minister has even warned that the country could descend into “civil war” amid the chaos of a euro exit.
“If Greece cannot meet its obligations and serve its debt the pain will be great,” Michalis Chrysohoidis was quoted as telling a local radio station. “What will prevail are armed gangs with Kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.”
CNBC asks if a run has started on Greek banks over the future...
Stocks faded in the final hour of trading Tuesday to finish lower after a transcript from the Greek meeting showed deposits leaving the banking system, fueling speculation that the nation might leave the euro zone.
The S&P 500 closed at 3-month lows, while the Dow logged its ninth loss in the last 10 sessions.
According to the transcript, Greek depositors recently withdrew 700 million euros from the nation's local banks, said President Karolos Papoulias, though the exact timing of the transfer was unclear.
"I think people need to prepare for the eventual removal of Greece from the EU and investors are getting ahead of that before they're forced to," said Matthew McCormick, vice president and portfolio manager at Bahl & Gaynor Investment Counsel on CNBC's "Closing Bell." "It's a political market and an event-driven market."
If, or more accurately, when Greece leaves - that will not end the crisis for the Eurozone. The crisis will continue - shifting to not only other countries, but also major financial institutions within the Eurozone and US. Other countries, like Spain, Portugal, Italy, and perhaps France, will also reach this same tipping point....
Mistakenly, they have convinced themselves that it won't much matter if Greece leaves, and indeed that it might even help resolve the wider crisis to get rid of this persistent thorn in the flesh.
Bring it on, they mutter callously; it will be a lot worse for them than for us. On one level, this is just bravado. It's an attempt to put as nonchalant a face as possible on the now apparently inevitable. But they also seem to believe in their validity of their own analysis – that they have indeed used the past two years well, and are now fully prepared for a Greek exit.
Believe it if you will. The ineptitude to date of the eurozone's crisis response strongly suggests a different conclusion – both that the likely contagion from an exit has been hugely underestimated, and that by prompting a wider breakup, thereby tipping Europe into depression, it may end up as bad for everyone else as it is for Greece.
The Greek problem has been consistently misdiagnosed and mismanaged right from the start.
This is the fundamental problem with Greece and the Eurozone. They think that someone else's money will never end - so they can spend at will to fund and control so much of their economy....35 hour work weeks, massive centralized government planning and regulatory control to ensure 'fairness', massive entitlements combined with retirement ages at nearly full salary / pensions starting at age 50, the Greek government habit of paying out 14 months of benefits each and every 12 month calendar year, etc. They think that doubling taxes will result in double revenues - and that they will not lose when those who oppose paying for not only themselves but 2 or 3 others decide to pick up and relocate themselves someplace with a smaller burden. Growth doesn't come from government spending- otherwise the Eurozone would be significantly bigger than the US.
The mindset there is to do whatever we can do to avoid pain - even if that step to dodge a small pain today causes a far larger pain at some point in the future. The future is someone else's problem - so just kick that can down the road. And by all means, refuse to learn from history or the examples of others...
We have this same battle in approach and ideology here in the US between conservatism and progressivism. But as the Wall Street Journal notes, we can see the two options at work directly in front of us - and select the more successful if we believe what we see - not see only what we want to believe...
Jerry Brown vs. Chris Christie - More states are realizing at the road to fiscal hell is paved with progressive intentions...
In his January 2011 inaugural address, California Gov. Jerry Brown declared it a "time to honestly assess our financial condition and make the tough choices." Plainly the choices weren't tough enough: Mr. Brown has just announced that he faces a state budget deficit of $16 billion—nearly twice the $9.2 billion he predicted in January. In Sacramento Monday, he coupled a new round of spending cuts with a call for some hefty new tax hikes.Read it all....
In his own inaugural address back in January 2010, New Jersey Gov. Chris Christie also spoke of making tough choices for the people of his state. For his first full budget, Mr. Christie faced a deficit of $10.7 billion—one-third of projected revenues. Not only did Mr. Christie close that deficit without raising taxes, he is now plumping for a 10% across-the-board tax cut.
It's not just looks that make Mr. Brown Laurel to Mr. Christie's Hardy. It's also their political choices.
One state stagnating. One state turning its economy around. One is progressive. One is conservative. Which is acting in the best interests for the people of the state? Who is achieving the best results for the people of the state?
One can either exacerbate the challenge (a la Mr. Brown and much of the Eurozone leadership) or one solves the challenges (a la Chris Christie or Scott Walker). Let's learn from history - and what is happening in front of us re success or failure. That is the battle the Eurozone faces - and the one that we face since we racing to catch up with the Eurozone. To me, the answer is clear.