A party who has contended that they would support the austerity requirements of the latest round of bailouts and keep Greece in the Union. So, to many investors, the European financial crisis appeared to have been abated for at least the time being, and maybe everything will turn out alright after all.
Here is the truth. Greece will be forced to return to the drachma and devalue, and the default will cause bank runs and money flowing into Germany and the United States as the only viable safe haven bets. It doesn’t matter which party wins. Greece will default because there is no other choice regardless of anyone’s politics.
It will hit the European Central Bank, the banks on the other side of the derivatives contracts, all of the Greek banks who are really in default at present and being carried by Europe as well as the nation, and the Greek default will spread the infection in many places that we cannot imagine because so much is hidden and tucked away in the European financial system.
Not unlike, I suppose, Nouriel Roubini, the New York University economist, who said the subprime-debt sky was falling for a long time before it fell, I have been hammering this message home since early January.
Greece cannot afford to pay off their regional debt, and various schemes to avoid the bad guys from taking over will not work nor will the attempt to roll the problem over to the rest of Europe by Germany succeed.
One thing is for sure. The Germans will not allow their cost of funding to rise or their standard of living to decline to help the nations that have gotten themselves in trouble.
As a result, Europe is headed for a bad recession with lots of shocks to the system, and it will happen in the next four months unless there is debt forgiveness, or Europe keeps handing them money like they are a ward of the state. Neither is likely to happen.