Greece in political chaos
Greece edged closer to exiting the euro after sparring political parties failed to form a new government.
Greece moved a step closer to exiting the euro this week after sparring political parties failed to form a new government, rattling European markets and triggering another round of elections next month. No viable coalition emerged from the welter of far-left and far-right parties elected earlier this month amid widespread anti-austerity fervor. With the country stuck in political limbo, investors worried that Athens would be unable to make the $14 billion in further budget cuts required by the European Union/International Monetary Fund bailout deal. That failure would halt the flow of financial aid to Greece, forcing it to withdraw from the euro zone and return to the drachma. The uncertainty pushed the euro to a four-month low against the dollar, and led depositors to withdraw at least $898 million from Greek banks.
Europe is about to experience “the mother of all bank runs,” said Matthew O’Brien in TheAtlantic.com. If Greece exits the euro, depositors in Ireland, Portugal, Spain, and Italy will transfer their cash to “safe” countries like Germany. That capital flight will encourage international investors to start betting on a breakup, causing borrowing costs to soar and making the euro’s collapse even more likely.
That pain would soon cross the Atlantic, said Bradley Klapper in the Associated Press. Wall Street has trillions of dollars tied up in European banks, and if the euro implodes, cash-strapped U.S. financial firms will start limiting their lending. Thanks to Greece, Americans will find it harder to “secure loans for business expansion and home mortgages.”
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There’s only one way to stop this cataclysm, said Bloomberg.com in an editorial. The EU and the IMF must push back their austerity deadlines and let Greece form a government that can recommit to economic reform. Voters will only back centrist parties if European leaders stop demanding self-defeating budget cuts and instead support growth measures in Greece and other ailing economies. Failing that, Europe and the world “will have no choice but to prepare for the worst.”
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