--UPDATE-- World leaders have urged Europe to take “all necessary policy measures” to resolve its debt crisis when they gathered at the G20 summit in Los Cabos, Mexico.
The pressure from G20 leaders comes as the victory of the pro-bailout party in Greece’s election failed to calm markets or ease concerns about the health of the global economy.
With borrowing costs across Europe reaching dangerously high levels, analysts are predicting that the euro-zone crisis is only going to intensify. As Theodore Couloumbis of the Greek think-tank ELIAMEP put it, "The crisis has been postponed, not necessarily averted.”
EU leaders also faced further pressure to sort out their economies from U.S. President Barack Obama who is concerned Europe’s crisis could hurt his re-election hopes.
Greeks Vote for Pro-Bailout Party
Greek voters gave a narrow victory to the pro-bailout party in a highly anticipated election on Sunday, easing global economic fears- for now.
The conservative New Democracy (ND) party edged out a victory over the leftist Syriza party, which strongly opposes the austerity measures imposed by the bailout, by a margin of only three percent. This margin, however, was not enough for ND to win an outright majority. They must now join forces with another party in order to govern.
In his victory statement yesterday, the ND leader, Antonis Samaras, said that “there is no time for political games. The country must be governed.” Samaras needs to form a government quickly as the country could run out of cash to pay its bills as early as next month.
Greece has been in a political limbo for the last two months and the threat of having its monetary lifelines from the euro-area and the IMF cut off are increasing. Already in its fifth year of recession, the country could face having to abandon the euro and reintroduce the drachma were the flow of rescue funds to stop.
Germany is also stepping up pressure on Greece to comply with the terms of the international bailout. The new greek government must fire up to 150,000 civil servants, slash spending by 11 billion euros this month, sell off a swath of state-owned companies and improve tax collection.
In his campaign pledge, Antonis Samaras vowed to ensure Greece would meet its commitments but also said that he would try and negotiate new terms for the bailout package. Yesterday, Samaras confirmed this viewpoint stating that "We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships."
However Germany, already irritated at the slow pace of Greek reform, ruled out delays and modifications to some targets in the rescue package. Chancellor Angela Merkel, at the G20 leaders meeting in Mexico, said that any loosening of Greece’s agreed reform promises would be unacceptable. "The new government will and must stick to the commitments, which the country has agreed on," she said.
The Greek economy is expected to continue to shrink this year after contracting 7 percent last year. With unemployment still running at over 23 percent, many economists have said that the harsh austerity measures will only make matters worse in the short term.
Nevertheless, the outcome of the Greek election was welcomed yesterday by euro-zone finance ministers. In a statement issued by Brussels last night, ministers said the outcome of the vote “should allow for the formation of a government that will carry the support of the electorate to bring Greece back on a path of sustainable growth.”
France's Socialist Party Secures a Majority in Parliament
France held its parliamentary elections yesterday and saw The Socialist Party take control of parliament for the first time in ten years. These results give President Francois Hollande a free hand to pass his promised growth-boosting measures, which include taxing the rich in order to reverse cuts in public spending.
Having the support of parliament will also allow Hollande to push back against the budget cuts being demanded by Germany, putting even greater pressure on the already strained Franco-German relationship.
Report: Greek Election Favors Pro-Bailout Party (NY Times, 17 June, 2012)
Report: Greece Backs Bailout (Wall Street Journal, 18 June, 2012)
Report: Greece’s Election Results: Déjà vu All Over Again? (Time, 17 June, 2012)
Report: Hollande's Socialists secure majority in French parliament (France 24, 18 June, 2012)
Report: WRAPUP 6-G20 ramps up pressure on Europe over debt crisis (Reuters, 18 June, 2012)
Report: Greece avoids 'Drachmageddon' but Europe debt crisis remains (MSNBC, 18 June, 2012)
Report: Greek leaders close to coalition, aim to ease bailout (Reuters, 18 June, 2012)