I guess the default setting is to feel better about Europe these days. The EU was successfully able to overthrow the governments of Greece and Italy (yay sovereignty!), and the new technocratic leaders are off and running. Italian Prime Minister Mario Monti got a boost when the country was able to sell €3 billion in short-term bonds this morning. The bond yield is rising today, but still under the supposed failsafe of 7%, at 6.69%.
But Europe may have a new problem in the form of the Greek opposition:
Greece’s conservative party leader on Monday vowed to reject any toughening of austerity measures in return for a multi-billion euro bailout, signalling the new coalition government may not enjoy the kind of cross-party support demanded by lenders.
New Democracy leader Antonis Samaras said he would not vote for any new austerity measures and added that the policy mix of spending cuts and tax rises agreed with international lenders should be changed in favour of economic growth.
“I agree with the goals to cut government spending … to reduce debt, to erase the deficit, to make structural changes. I do not agree with whatever stunts growth,” he told party MPs ahead of a three-day confidence debate, starting on Monday.
This comes from the leader of a party that is actually part of the government right now. New Democracy is part of the coalition under technocrat and former ECB vice president Lucas Papademos. Legislation for the new bailout deal probably cannot pass without New Democracy’s support. So unless Samaras is expressing merely a personal view, there’s not much chance that the bailout measure can pass in Greece, which means default and potentially contagion.
Up until a couple weeks ago, this would have been seen as a crisis in Europe. But with Italy, a much larger Eurozone member, in trouble, it’s not getting nearly the same level of attention. The issues still exist, however. If New Democracy votes down the austerity deal, the troika will withhold payment on the next tranche of the bailout. Default would ensue. And though there’s no mechanism for a Eurozone exit, that would be the next likely step.
To be clear, my view is that this needs to happen before Greece stops being a sovereign nation and its people are ground into dust.
There’s a confidence vote on Papademos on Wednesday, and protesters have planned a big rally on Thursday, the anniversary of a student uprising that eventually took down a military junta in Greece in the 1970s. Perhaps some tweaks can be made to make the deal more palatable to New Democracy. But at the moment, at least, Greece is on the road to default.