Evident this morning ahead of Sunday’s eagerly anticipated Greek election is a cacophony of opinions and interpretations offered by European leaders. We have had ECB Chief Mario Draghi on the wires claiming that political decisions are more important in the short term than anything monetary policy could achieve: Angela Merkel imploring global leaders to go a little easier on her country, as Germany simply cannot be the panacea for all of Europe’s sicknesses and ills; German FDP floor leader, Bruederle, suggesting that it would be best for Greece if it remained in the single currency; ECB Governing Council member Praet (and Draghi as well) stating that European nations will need to give up some sovereignty in order to improve policy co-ordination in Europe; and the ex-CEO of Deutsche Bank remarking that Eurobonds would hurt Germany enormously.
The magnitude and scale of the official dialogue over recent days is testimony to the incredibly heightened sensitivity that exists amongst policy-makers, not just in Europe but also in Asia and the Americas as well. Many fear that Sunday’s election outcome in Greece could represent a watershed for the euro. Should extremist parties such as Syriza excel at the expense of pro-bailout parties, then the worry is that Greece would be on the slippery slope towards leaving the single currency.
Probably more likely is that the New Democracy Party and Pasok register greater support this time around, as the Greek population calculate that the extremists might accelerate the country’s descent into economic and financial ruin. Should the pro-bailout parties form a new government, they would attempt to re-negotiate the existing bailout plan quite quickly, which European leaders would likely agree to in principle but adjust only fractionally in practice.
Greece’s departure from the euro remains inevitable and should Syriza top the poll then this outcome would more likely happen sooner rather than later. More likely, although Greece continues to stare over the precipice, as long as the new leaders take fresh vows to declare undying commitment to the bailout terms, then Europe (including Germany) will probably allow Greece to hobble along for a while longer.