The crisis that hurts you most is the one you didn’t see coming. There may be one ahead for the Obama administration, but it’s hiding in plain sight.
Greece held parliamentary elections Sunday, and the results cast grave doubt on the landmark restructuring deal the Greek government forged with European countries and institutions in March.
Under that deal, private bondholders agreed to lose as much as 75% of their investment in Greek debt so the government could issue new bonds. Then Greece would get funds from a $150-billion European bailout package that would help its pay its bills.
But the price was steep cuts in an already decimated budget. Previous rounds of cuts have helped slash Greece’s standard of living by 20% and boost unemployment to a Spain-level 22%. Civil servants and other workers haven’t been paid for months. Greeks have pulled $53 billion out of banks.
Things have reached the breaking point, so Greeks voted to throw the rascals out. The two Establishment parties that backed the debt deal, New Democracy and the Socialist Party, saw their vote total slashed in half, to 32% altogether in Sunday’s election.
Syriza, a left-wing coalition led by the young rabble-rouser, Alexis Tsipras, came in second with nearly 17% of the vote. Golden Dawn, a neo-Nazi anti-immigrant party, got almost 7%.
The meaning of the election was clear: The Greek people had had enough austerity, and weren’t going to take any more.
“Voters rejected the barbarous policies in the bailout deal; they abandoned the parties that support it, effectively abolishing plans for sackings [of public sector workers] and additional spending cuts,” Tsipras said.
Tsipras’s own plans are a hodge podge of left-wing populist measures: repudiate the debt, nationalize the banks, undo labor reforms, and tax the rich.
He’s now trying to form a government after New Democracy’s Antonis Samaris failed. If he can’t, it will be the Socialists’ turn. So there’s a good chance Greece will face a second round of elections.
Meanwhile, a key deadline looms. Greece must cut $15 billion from its budget in June, but it may not have a government willing to do it. If it can’t, the bailout deal will probably unravel and Greece may be booted out of the euro zone.
Here’s what Kenneth Rogoff, the economist who best understands our age of debt, told The New York Times:
A Greek exit would underscore that there’s no realistic long-term plan for Europe, and it would lead to a chaotic endgame for the rest of the euro zone.
It also could cause another global financial panic that would freeze economic activity again, leading to at least a temporary reversal of the gains in GDP and employment we’ve seen since 2009.
That could come just as President Obama and former Massachusetts Gov. Mitt Romney try to persuade US voters they’re the best stewards of the economy.
The president’s reelection team must be crossing their fingers and toes this doesn’t happen. It shows that events halfway around the world, over which the president has no control, may ultimately determine his fate.