June 17, 2012 at 5:58 PM ET
ERFURT, Germany -- Greek voters Sunday bought Europe’s leaders a little more time in their two-year, unsuccessful struggle to contain an ever-widening financial crisis. But the forces that are slowing the continent’s economy and threaten to break the common currency apart show no signs of easing
In what amounted to a referendum on a German-engineered program of deep spending cuts and sweeping economic reforms, Greek voters Sunday agreed by a razor-thin margin to continue to abide by Berlin’s harsh terms in return for an ongoing financial bailout that will allow Athens to keep paying its bills.
The imminent prospect of a painful economic future without that financial support prompted Greek voters to narrowly elect parties committed to abide by terms agreed to by Greece's former government. Sunday’s vote spelled defeat for radical leftists who had vowed to reverse course and break with austerity measures that have driven Greece’s economy into a deep recession.
Now, the conservative New Democracy, with roughly 30 percent of the vote, is expected to join with the PASOK Socialist party, with 12.3 percent, to form a new government.
“Today the Greek people expressed their will to stay anchored with the euro, remain an integral part of the euro zone, honor the country's commitments and foster growth,” Antonis Samaras, leader of conservative New Democracy party, told reporters after the vote. “This is a victory for all Europe. We are committed to do what it takes and do it fast.”
Sunday’s vote was the most crucial test to date of the strained monetary union that lies at the heart of a financial crisis that has sent Europe into a widening recession. But the vote provided only a temporary reprieve.
Last week, banks in the weaker southern economies of Greece, Italy and Spain were hammered as investors and depositors fled, leaving those nation’s banks under added pressure. Worries about possible default of their government’s debt slashed they value of their bond holdings. Spanish government debt is now rated just above notch above junk status. Spain’s banks have also been forced to write down the value of home mortgages as they continue to suffer the painful hangover of a U.S.-like housing bust.
In the short term, Sunday's vote gives euro zone leaders, led by German Chancellor Angela Merkel, some breathing room. For the first time in weeks, there is now hope that Athens will form a government that will negotiate with Berlin and its allies over ongoing conditions for the financial lifeline that is keeping Greece from falling into economic chaos and exiting the common currency.
But Merkel has become even more isolated in her insistence that Greece citizens adhere to measures that have already lowered their standard of living and promise harsher sacrifices ahead.
On Sunday, French President Francois Hollande's Socialists strengthened its hold on parliament, wining an absolute majority, and giving him greater backing as he presses Germany to ease up on its insistence on austerity for weaker euro zone economies. Following the defeat Nicolas Sarkozy, his predecessor and Merkel's most visible ally, Hollande has reversed France’s course and pressed for an easing of austerity measures and for new spending to stimulate growth. He also wants to see a new euro zone banking system set up to protect depositors and states if banks fail.
Merkel and Hollande are set to fly to Mexico on Monday for a Group of 20 summit that will once again be dominated by Germany, the largest and most prosperous economy that is bearing the brunt of the financial burden of bailing out it weaker neighbors. Sunday’s elections in Greece will only push Germany deeper into the crisis.
Still, after 18 unsuccessful summits in the past two years, it remains to be seen whether another meeting will accelerate coming up with a solution to the crisis On the one hand, Greek voters acknowledged what has been known for two years: No Greek government can avert social chaos without a financial lifeline. Athens’ departure from the euro would only speed the country’s financial collapse.
But the Greeks willingness to accept German money does little to raise popular support among German voters for continued bailouts of Athens -- and potentially Madrid and Rome yet to come. As the Greece election results were being tallied here Sunday, most TV screens in the former East Germany were tuned to watch the national soccer team advance in the latest round of the Euro 2012 championship.
German voters who have been paying attention to the events in southern Europe are deeply ambivalent about the ongoing demands for bailouts. While most support the continuation of the monetary union, many are deeply skeptical that financial assistance alone can revive the comatose Greek economy.
“We are in a European union we have to stand for their debt as long as they're in the euro zone,” said Frederik Grewe, a retired government worker in Berlin. “But the Greek have no basic industry -- only the tourists. It’s the same in Portugal and Spain and Italy.”
But the recession sweeping through southern Europe is already cutting demand for German exports, which has begun to slow the gears of Germany’s heavily export-driven economy. But for the time being, for German voters the euro zone crisis is visible only in the headlines.
If the recession spreads, though, Germany’s leaders may have an even tougher time continuing to extend the financial lifelines that are keeping southern Europe from slipping into a deeper downturn.
“If times get harder then it could easily happen that there’s less willingness to stand ... for other countries -- even in the same currency zone,” said Timo Klein, an economist with HIS Global Insight based in Frankfurt.