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The Monday After

Today is the first day after the “crucial” Greek vote.  Except that vote was probably not all that crucial. Nothing fundamental has changed in Europe over the weekend. At best, all that has been accomplished is pushing out the end-game once again.

The Financial Times reports that Greece is on the verge of forming a government:

Antonis Samaras, leader of Greece’s New Democracy, began talks to form a coalition government on Monday following his party’s failure to secure an outright majority in the country’s election.

If Europe thought this would be the end of the story on the last bailout, think again:

Mr Samaras told reporters after his meeting with Mr Tsipras that he would invite all pro-European parties to join a coalition government.

He also restated his determination to seek “alterations” to the bailout by renegotiating the terms with Greece’s creditors.

Bloomberg reports that German Chancellor Angela Merkel just says “nein” to such bluster:

German Chancellor Angela Merkel said Greece shouldn’t be granted leeway on terms for its bailout, rejecting signals from her foreign minister that creditors may relent on austerity measures…

…“The important thing is that the new government sticks with the commitments that have been made,” Merkel told reporters at the G-20 meeting in the Mexican resort of Los Cabos. “There can be no loosening on the reform steps.”

Yes, another showdown is certain.  Merkel will give up only the slightest sliver of ground, almost ensuring the Greek economy remains locked in a never ending cycle of austerity.  And according to rumor this is exactly why Alexis Tsipras, the leader of Syriza, has no interest in joining with New Democracy in a coalition government, instead leaving the inevitable failure of this next bailout on the shoulders of his opponents.

And while the world learns about Greek politics, the real story is Spain.  Clearly, market participants saw nothing good in the Greek results for the trajectory of Spain’s problems.  Yields on 10-year debt surged solidly above 7% today:

Spain

Of course, if European policymakers expected a pro-Euro Greek outcome to bring relief to Spain and Italy (now above 6%), they were sure to be disappointed.  Hopes for a firewall around Greece are so 2011.   The fire has already jumped that line, and it looks as if Europe has yet to send any firefighters to battle the blaze.  Meanwhile, the only institution that can move quickly remains committed to standing on the sidelines.  To be sure, ECB President Mario Draghi signalled that the ECB has room to move, but he did not signal the timing.  For the sake of the Spanish people, it really needs to be sooner than later.

Bottom Line:  This Monday feels like all the others.  The latest Greek vote is behind us, but the the dysfunctional political and economic system that is Europe remains.

This post originally appeared at Tim Duy’s Fed Watch and is posted with permission.

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Emre Deliveli The Kapali Carsi

Emre Deliveli is a freelance consultant, part-time lecturer in economics and columnist. Previously, Emre worked as economist for Citi Istanbul, covering Turkey and the Balkans. He was previously Director of Economic Studies at the Economic Policy Research Foundation of Turkey in Ankara and has has also worked at the World Bank, OECD, McKinsey and the Central Bank of Turkey. Emre holds a B.A., summa cum laude, from Yale University and undertook his PhD studies at Harvard University, in Economics.

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