Greece, Followed Closely By Spain.

It appears finally that Greece is about to abandon the euro and drop the charade.

The divide between the supporters of the 130 euro ($168 Billion) EU/IMF bailout and the opponents has resulted in an election that has failed to produce a central government, and a new election is planned. This of course means that the anti-austerity measure supporters won BIG.

Greece is about to run out of money (in June) and there will be no government in place to negotiate the next tranche. Investors are betting that Greece will default and withdraw from the European Union in the next few months. Spanish and Italian bond yields rose as investors fretted the political deadlock meant Greece was on track to become the first country to abandon the euro. Followed closely by Spain and Italy. Germany better start pulling its horns back in.

“We wish Greece will remain in the euro and we hope Greece will remain in the euro … but it must respect its commitments,” European Commission spokeswoman Pia Ahrenkilde Hansen told a regular news briefing.

The prospect of national bankruptcy and a return to the drachma appeared to be slowly sinking in among Greeks, who must now choose between the pain of spending cuts demanded in return for aid and the prospect of even more hardship without the euro.

“We have to stay in the euro. I’ve lived the poverty of the drachma and don’t want to go back. Never! God help us,” said Maria Kampitsi, 70-year old pensioner, who was forced to shut her pharmacy two years ago due to the economic crisis.

“They must cooperate or we’ll be destroyed. It will be chaos. For once, they must care about us and not their own position.”

Polls suggest SYRIZA would come first if elections were held again, netting it a bonus of 50 extra seats in the 300-seat parliament and raising the odds for an anti-bailout coalition taking control of government.

German Finance Minister Wolfgang Schaeuble said Greece was in a “dreadfully difficult situation” but would pay a high price if it left the euro.

It looks grim.

While this is happening in Greece, Spanish students are protesting on Barcelona‘s elegant boulevards, public-sector wages are being cut for the second time in three years and resentment is growing against the central government and beneficiaries of bank bailouts.

Such is the daily fallout from the euro zone‘s debt crisis. Like the rest of Spain, Barcelona is looking at several years of hard grind as the country adjusts to living within its means after the collapse of a debt-financed housing bubble that has brought much of the banking sector to its knees.

Spain is more representative of the generally insidious, demoralizing nature of the crisis: austerity is sapping trust in politicians across the euro zone and fraying the social fabric as the bills for years of economic mismanagement are shared out.

“The problem is social. What are we going to do when we have 25 percent unemployment? It’s dramatic,” said Joan Ramon Rovira, head of economic studies at the Barcelona chamber of commerce.

Even though every fourth Spaniard is unemployed, job protection is being eroded. In Barcelona, capital of the northeastern region of Catalonia, hospital wards are being closed, class sizes are growing and university fees are rising.

The result is a hardening of attitudes as various groups campaign to preserve their entitlements. The crisis has also ratcheted up political tensions with Madrid as supporters of Catalan independence increasingly begrudge helping to bankroll the central government, which they feel treats them with disdain.

“Spain is a backpack that is too heavy for us to keep carrying. It’s costing us our development,” said the spokesman for Catalan President Artur Mas, Joan Maria Pique.

Spanish banks have more than 180 billion euros of sour property assets on their books, and analysts fear there is worse to come as recession triggers more corporate and mortgage defaults. Spanish banks have ignored mortgage defaults and slumping housing prices on their balance sheets, so a reading of their books is highly misleading.

House prices have fallen about 25 percent since 2007 and a Reuters poll published on Friday pointed to a further decline of more than 15 percent in 2012-2013.

Roubini Global Economics sees losses ranging from 130 billion euros to 300 billion euros and attaches a 60 percent probability to the need for a sovereign bailout followed, in 2015, by a restructuring of Spain’s debt.

Conversations in Barcelona suggest that people do understand the need for belt-tightening. Importantly, strong family ties constitute a safety net of sorts for the unemployed. But there is a sense that the sacrifices are not being fairly shared.

Felipe Aranguren, 59, who works when he can as a sociologist, rails against Spain’s “rotten” banks and wants higher taxes on the rich to pay for a “New Deal” public-works program.

Psychology student Celia Nisare Bleda, 19, fears that students from poorer families will bear the brunt of the education cuts. With every second young Spaniard out of work, she suspects that not even a degree will be enough to secure a job in Spain that pays decently.

Lots of students were going abroad in search of a better future. So would she if necessary. “With the salaries we’re likely to get, there’s no possibility of having a good life. We’ll be living all our lives like students.” Nisare Bleda said.

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About Steve King

iPeopleFINANCE™ Chief Operating Officer. Former CEO of Endymion Systems, Inc. a $36m Information Systems Services company. Co-founder of the Cambridge Systems Group, the creator of ACF2, the leading IBM Mainframe Data Center Security product; acquired by Computer Associates. IBM, seeCommerce, marchFIRST, Connectandsell alumni. UC Berkeley alumni. View all posts by Steve King

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