As the Eurozone continues to show weakness, events last weekend in Athens may accelerate the situation. The downward movement in oil prices this week in both London and on the NYMEX testified to the rising concern.
The aftermath of the Greek elections propelled the new radical left party SYRIZA into the limelight as the second strongest party in the country. Given the adamant refusal by SYRIZA leadership to accept bailout reforms, the party’s new brokering position means the crisis will continue.
Bitter austerity measures await the formation of a coalition government, since no party received a majority of the seats in parliament from the vote. The coalition is supported by both the New Democracy and socialist PASOK parties, which have taken turns ruling Greece for nearly four decades.
But the surprise showing of SYRIZA has thrown the possibility of an accord into disarray.
At best, this means a further delay and likely a new election.
On the other hand, Greece has little time left. Any further delay in forming a government, with no guarantee that a very angry population will vote any differently the next time around, puts the next tranche of the European Union bailout package in jeopardy.
It is now more likely that Greece will leave (or be pushed out of) the Eurozone, casting a greater uncertainty on both the currency and the southern tier of countries still in the zone.
Spain is the current focus of concern, but Italy is also exhibiting renewed weakness.
Unlike Greece, Spain and Italy have debt problems that dwarf the ability of any Brussels-led support package. These economies are simply too large to be “rescued” from the outside.
The concerns over contagion, therefore, may actually expedite a Greek departure earlier than most thought possible.
It is true that any members leaving the Eurozone will have a negative effect upon currency strength and economic prospects. It is also unclear how the Greek departure will aid in shoring up either Spain or Italy. The problems in each of these economies are endemic; they are not primarily a result of “spillovers” from the situation in Greece.
All of which means, to borrow a phrase from former U.S. Secretary of Defense Donald Rumsfeld, there are a series of “known unknowns” now facing the EU. The credit and banking problems are essentially the “known” part of this equation. The extent of the fallout on the euro as a whole is the massive “unknown” flowing through the calculations.
This is accentuated by recent developments in the two major economies using the euro — Germany and France. No rescue package for any EU member is possible without the leadership of these two dominant European economies. To date, Paris has emphasized protecting its suspect banking sector, while Berlin has a strong political undercurrent demanding additional protection of German production and trade.
However, the recent French elections, in which a socialist has been elected president, and indications surfacing that the German economy may be facing a slowdown, will put continued support of a “bailout for austerity” approach to Greece in question.
Thus far, both major nations have led the EU-Greek approach, strongly arguing that the preservation of the euro demands it. The dramatic political events unfolding in Athens are rapidly undermining that support.
And this has impacted the price of oil.