Economic Outlook: So long, eurozone

By ANTHONY HALL, United Press International  |  May 9, 2012 at 10:04 AM
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The first major test of the eurozone looks to many to be boiling down to blind faith versus the power of the vote.

If logic will out, the power of the vote has the upper hand at the moment. Like a basketball game, the odds favor the team with the ball. After all, you can't score without it.

Newly elected representatives in Greece have been unable to put together a coalition government, but the demands that would get them there seem at this point to be one harsh threat after another.

"If Mr. [Antonis] Samaras [of the New Democracy Party] and Mr. [Evengelos] Venizelos [of the Socialist Party] genuinely regret their disastrous decisions [to accept international bailout loans from the European Union and the International Monetary Fund], let them write to the EU and IMF leaders tomorrow, revoking their signatures," said Alexis Tsipras, leader of the Coalition of the Radical Left.

"If they don't, I call on them to stop duping the Greek people."

On the other end of the spectrum, Golden Dawn Party leader Nikos Michaloliakos, whose party won 7 percent of the vote in Sunday's election, uses a Nazi-like logo, Nazi salutes and Nazi rhetoric with phases like, "Those who betrayed the motherland should run scared."

The implication for the eurozone, the 17 nations that use the euro as a common currency, spell disaster. The eurozone, of course, could survive without Greece and politically should have gently found a way to set Greece adrift two years ago. However, both extremes in Greece, now duly elected extremes, are pledging to tear up deals with the IMF and the EU that took years to create.

By the end of the summer, some predict, Greece will be non-compliant with terms of these deals and be duly pitched from the eurozone.

And that is where the trouble starts. Suddenly, it becomes viable for other countries rescued by Europe to simply vote in a new government and renege on billions of dollars in loans. The risk of lending to Spain, Italy and others has suddenly hit a wall of democratic reality. Big loans could go up in a puff of smoke if voters become frustrated with their current leaders.

It is considered a given that newly elected officials will honor contracts signed by their predecessors. But that is not always the case.

From now on it is a liability for a European country that needs financial help to hold an election. The $1 trillion rescue facility, with Greece setting the stage, may as well start writing refund checks now. So long rescue effort. So long eurozone.

In international markets Wednesday, the Nikkei 225 index in Japan fell 1.49 percent, while the Shanghai composite index in China fell 1.65 percent. The Hang Seng index in Hong Kong dropped 0.75 percent, while the Sensex in India shed 0.4 percent.

The S&P/ASX 200 in Australia gave up 0.91 percent.

In midday trading in Europe, the FTSE 100 index in Britain was off 1.28 percent, while the DAX 30 in Germany was down 0.65 percent. The CAC 40 in France slipped 1.19 percent, while the Stoxx Europe 600 lost 1.23 percent.

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