The latest showdown in the European Union features the election of the very first anti-austerity government in Greece, cold disillusionment among the EU’s political elite, and the prospect of a broken promise, which could push financial markets into a tailspin in the near future.
Last month’s electoral victory by Greece’s left-wing Syriza party, which was driven by the promise of non-adherence to the harsh austerity conditions imposed on the country, threatens a $130-billion rescue package that Greece needs to stay solvent. If no agreement between the warring parties is found soon, the possibility of a Greek exit—or “Grexit”—from the eurozone becomes a real possibility. The repercussions for the euro, the union’s common currency, are largely unknown.
As Europe’s economic powerhouse, Germany has taken the lead in arguing for the austerity conditions imposed on Greece. But many economic experts and political officials have begun turning against the German-prescribed medicine and are increasingly calling for debt relief for the crisis-stricken nation.
U.S. President Barack Obama acknowledged the need for structural reforms in Greece, but was hesitant to fully endorse the austerity measures. “You cannot keep on squeezing countries that are in the midst of depression,” he said during an appearance on Fareed Zakaria’s GPS. He furthermore emphasized that Greece’s economy has contracted by 25 percent since 2008.
In Europe, French President Francois Hollande has also been putting pressure on the German government to loosen the strict conditions imposed on EU member states in crisis. Meanwhile, European Commission President Jean-Claude Juncker, Italian Prime Minister Matteo Renzi, and even the International Monetary Fund have urged a more flexible interpretation of the EU’s Stability and Growth Pact, which provides the legal authority for the austerity conditions.
