Voters in Greece give markets a brief reprieve from their daily diet of panic, but the European debt crisis isn't even close to being over
This weekend, the center-right New Democracy party won the most votes in Greece's parliamentary elections, which had been billed as a referendum on whether the country should remain in the eurozone. New Democracy is expected to form a ruling coalition that supports a bailout from the European Union, despite accompanying austerity conditions that have angered many Greek voters, thus sidestepping a euro exit that could have unleashed chaos in global markets. However, the Greek vote was just one part of a hydra-headed crisis, and attention has already turned toward a host of other problems. Here, four predictions as the euro crisis rumbles along:
1. Greece will want leeway on the bailout — but may not get it
A Greek coalition led by New Democracy would likely ask Europe to ease the terms of the bailout so that Greece has more time to make deep spending cuts intended to reduce its bloated debt load. While officials from some European countries have suggested that they're willing to compromise, German Chancellor Angela Merkel remains steadfast in her opposition to renegotiating. Indeed, German "hard-liners were emboldened" by New Democracy's victory, say Nicholas Kulish and Jack Ewing at The New York Times, "viewing it as an endorsement" for more austerity, not less.
2. Greeks can expect "chronic misery"
Even a modified bailout wouldn't spare Greece the pain of austerity, meaning the vote was essentially a choice between the "acute disaster" of a euro exit and the "chronic misery" of a deep recession, says S.C. at The Economist. It will be no easy task for Antonis Samaras, the leader of New Democracy, to maintain a coalition that can stick to the bailout's unpopular demands. "Should Samaras be able to solve this political sudoku, he then faces the task of rebuilding trust" with his European partners, says Nick Malkoutzis at Bloomberg Businessweek. "In the Greek crisis, things are not about to get simpler."
3. Spain and Italy may need bailouts, too
On Monday, the interest rate on 10-year Spanish bonds rose above 7 percent, the threshold that "divides the merely-terrifying-and-unsustainable territory [from] the land of screwed-without-a-massive bailout," says Derek Thompson at The Atlantic. Italy's borrowing costs are also fast-approaching unaffordable levels, and the eurozone could find itself having to bail out both countries. But the truth is, the European Union and the International Monetary Fund "may simply be unable to assemble a bailout fund large enough to save them," says Gideon Rachman at The Financial Times.
4. Europe may be forced to make radical changes
The outcome of the Greek election "was as good as could have been hoped," says former Treasury Secretary Lawrence Summers at The Washington Post. But it buoyed markets for less than a day, "evidence that the current strategy... has run its course." Instead of arguing over bailout terms, it's time for Germany and other creditworthy countries to shoulder more of the continent's debt burden. In addition, the European Central Bank should spur growth by adopting the types of emergency lending programs implemented by the Federal Reserve during the U.S. financial crisis. Germany has legitimate qualms about what such moves would mean for the future of the euro, "but only if the system is preserved can its future be debated."
Other stories from this topic:
- The List: Greece's pro-austerity election results: 4 takeaways
- Burning Question: Spain's skyrocketing borrowing costs: 4 burning questions
- Opinion Brief: The euro crisis: Is Italy the next domino to fall?