After months in financial limbo, Greece started a new government this afternoon by swearing in a new prime minister. Economics Professor Christine Ries analyzes the challenges ahead and what will happen next in Europe.
My mother-in-law had a great tennis strategy: You don’t need to smash the ball. Just get it back over the net. The Greek electorate got the ball back over the net last week. In carefully watched elections, the vote telegraphed a majority’s desire to stay in the Euro, but with less “austerity” than Greece had previously negotiated with its bailout donors.
The Greek New Democracy party has just formed a coalition government with two other political parties. The next step is for them to appoint cabinet ministers, which includes finding a new finance minister with the unenviable job of organizing national consensus around a new program for government spending cutbacks.
The program must pass muster with Europe, which means €$11.6 billion in additional Greek spending cuts. This, while the economy is scheduled to shrink at least another 7% in the coming year. Large numbers of Greek families will be forced into bankruptcy. People are increasingly forced to barter in order to do business since everyone wants to hang on to their Euros.
Is it any surprise that no one wants the job of Finance Minister in the new Greek government? Anyone who assumes this impossible responsibility will sacrifice their political career. The party will look for someone with no political career to sacrifice but with enough experience and intellectual weight to negotiate the path.
Not an auspicious start for the new government.
Now the ball is in Germany’s court. Will Chacellor Angela Merkel renegotiate and soften the requirements for fiscal responsibility on the part of Greece? Will the German taxpayers refuse to sacrifice even more of their retirement assets to pay pensions for Greeks who are – compared man to man – younger?
Also, how will the governments and voters in Spain and Italy position their own demands for bailouts if the Greeks get a better deal? We can watch and learn as the voters, public officials and rioting protestors interact to redistribute German wealth.
Will the prosperous European family grant yet another extension to the poor relative who is begging for an additional two years to pay off a huge debt? All the while, investors and institutions around the world are preparing for a reshuffling of the Euro.
The longer the Kabuki theatre continues, the more everyone will prepare and the less impact Greece’s eventual exit will have on the rest of us.
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