The Left is Back in Greece

Shockwaves have rippled throughout Europe as the anti-austerity party, Syriza romped to victory in the elections held in Greece on Sunday. Alexis Tsipras, the leader of Syriza has promised to renegotiate the bailout terms with Greece’s international backers known as the Troika (a coalition of Eurozone countries, the International Monetary Fund and the European Central Bank). His aim is to end the devastating austerity that has caused the Greek economy to experience near perpetual recession for the past six years. When asked what Syriza’s victory meant, Tsipras responded “the vicious cycle of austerity is over.”

Following the financial catastrophe of 2008, Greece’s debt became a massive problem for government finances. Greece needed to borrow money to keep the country running, but was unable to borrow from the banks due to the extortionate interest rates it was being charged. To save the Greek economy from collapse the Troika offered the Greek government a bailout. In exchange the Greek government would have to slash spending by huge amounts to balance its books. However this was the wrong time for austerity, private spending was already low due to the crash, so government spending was required to keep the economy afloat. Unfortunately the terms of the bailout resulted in plummeting private and public spending, creating a vicious cycle of decline. As many Greeks lost their jobs or had their pay cut, government tax revenues went down and welfare payments went up. However since the government was required to try and balance its budget, this created a bigger imbalance and forced further cuts. This meant less money in the economy, so more people were made unemployed, which in turn made government finances even worse off.

No wonder people voted for the most viable anti-austerity party; Syriza.

In the election Syriza managed to win 36.4% of the vote and 149 seats (just two short of a majority) compared to 27.8% and 76 seats for New Democracy, the senior party in the ruling coalition. This victory for Syriza is a line in the sand for both Greece and Europe. It has shown what will happen when you unleash harsh austerity on your people. Greece is far from unique, in Spain the anti-austerity and left-wing party Podemos was leading in the polls at the end of last year, despite only being founded in January! It also serves as a warning to establishment left-wing parties across Europe, including Labour hear in Britain. The rise in popularity of Syriza has been possible thanks to the collapse of the establishment left-wing party, Pasok. It entered into a collation with the conservative New Democracy and helped to unleash the austerity Greece has had to undergo. Other establishment left-wing parties should be wary before carrying out similar programs back home.

It is a new day in Europe, what happens next with Greece will decide the fate of the European integration project that is the European Union.  

Syriza supporters celebrate following victory in the election
Souce: BBC

Review 2012

Well what a year we’ve had! There has been the most expensive Presidential Election of any country ever, Greece has gone from bad to worse, the Arab Spring continues in Syria and here in Britain we entered into a double dip recession. Although I don’t feel that 2012 was the year of change that 2011 was, it will still go down as important in the history books. The shooting of a 15 year old girl by the Pakistani Taliban sparked outrage in the country. The attack could help to stop people joining the terrorist organisation! The Palestinian-Israeli conflict took a turn for the worse after Israel killed one of Hamas’ leaders and Israel was furious when Palestine had its status upgraded in the UN.

The year saw a change of leadership in China and France and Greece choose a new government for its sinking economy. It was confirmed that in 2013 the EU will get a new member, Croatia, whilst the Eurozone crisis continued to rattle on.  

The year ahead of us will be the sixth since the economic crisis began and still there is no light at the end of the tunnel. Predictions are that the Eurozone economy has shrunk by a small amount in the past year, the same is true for Britain. What stopped the crisis that began in 2007 being worse than the 1929 crash was the economies of the developing nations, particularly Brazil, China and India. Unfortunately their economies are beginning to slow down, China has stopped producing double digit growth for the first time in a decade and India and Brazil are below 5%. Although European countries would kill for growth figures like those, the world economy depends on them being very high. The US has just fallen off the fiscal cliff (although a deal should be one the way) and Europe’s economy is expected to shrink again this year, if the developing nations’ economies do start to slow this could have cataclysmic knock on effects.

We are living in a time of change, what happens over the next year could prove very important in the long run.  

Euorzone Crisis

For all of 2012 the crisis in the Eurozone dominated the news in Europe. As always Greece got the bulk of the attention, the problem for Greece is that every budget it passes has to have massive cuts mandated by the Troika. If they don’t pass the cuts then Greece doesn’t get the bailout money and it defaults on its debt. But everytime a budget comes out there are protests on the streets as people are fed up with the austerity. It didn’t help that Greece was forced to elect a new government twice. You see, Greece’s economy is in a death spiral, Greece struggles to pay its debts so gets a bailout from the troika. In exchange for money the troika force Greece to pass tough austerity, this forces the Greek economy to shrink as there is less money. This causes businesses to lay off workers or close altogether, adding to the government’s unemployed lists and causing the economy to shrink. This means less taxes are collected by the Greek government and more spending on unemployment benefits causing Greece to be unable to pay its debts. This forces Greece to go to the Troika for money and... you get the picture. Some fear that this death spiral could cause Greece’s economy to shrink by 25% of its pre-crisis level.

Spain had a bad year too, it was forced to bailout one of its largest banks, Bankia. Thankfully the Spanish government itself did not need a bailout, but was pressured to accept one. After summit talks in June Spain’s Prime Minister, Mariano Rajoy, got a massive victory; Merkel softened her hardline approach and allowed the Eurozone to bailout banks directly (rather than bailing out countries who had bailed out banks). This also brought the Eurozone to a banking union.

There were many fears that Italy could require a bailout to stay afloat; there was a problem. Italy is one of the world’s largest economies and there wouldn’t be enough money to save it. Thankfully Mario Monti, the country’s technocratic Prime Minister, has been able to steer Italy through this crisis pretty well. Unfortunately for Italy, Silvio Berlusconi is not quite gone, he is going to run for election this year. This spooked the markets as Berlusconi is a synonym for incompentence.

In the past couple of months the Eurozone has been much quieter and many are beginning to say the worst is over. And although I am optimistic, I agree with Merkel when she says the crisis is ‘far from over’.

Greek Elections

Greece has been hit the hardest of any Western nation, Greece’s economy has hit rock bottom and is unlikely to recover any time soon. The ratings agency Fitch gives Greece’s credit rating as CCC, which means that default is highly likely. With the terrible financial collapse and the oppressive austerity being forced from the government, Greece’s governing party PASOK was expecting a walloping at the election.

Citizens first went to the polls in May 2012 to try and elect a new government. Unfortunately for the Greeks, nobody got a majority or could form a coalition. The primary issue for most Greeks was the bailout from the ‘troika’, without money from the troika Greece would be unable to pay its debts and it would default. But the money doesn’t come without a catch; in exchange for bailout money Greece must force harsh austerity on its citizens. Many Greeks are fed up with the austerity and would rather take default. Of the three main parties New Democracy (Conservative) and PASOK (Democratic Socialist) are pro-bailout and together they got 149 seats, two short of a majority. It is important to note PASOK’s share of the vote declined by over 30% whilst ND declined by 15%. Opposing the bailout was SYRIZA, which got 52 seats and almost 17% of the vote, very close to ND’s 19%.

This meant that another election had to be scheduled for June, which left Greece with no elected government for a whole month. Luckily for the Greeks they elected a government this time, the ND-PASOK coalition got 162 seats to SYRIZA’s 71.

One important point left unmentioned thus far is the rise of Golden Dawn, sounds like a nice party right? Wrong. It is a neo-Nazi party with horrible anti-immigrant, anti-women and anti-gay ideologies. The horrible party got 7% of the vote and 18 seats in the June election, Golden Dawn is not alone, far right parties have been gaining ground all over austerity weary Europe. In France the National Front leader, Marine LePen, received 18% of the vote in the first round of the Presidential Election. Germany, Italy, the Netherlands and Finland have all experienced a rise in the far right.

The elections earlier last year do not actually solve anything; they just give Greece a stable government for the time being. Merkel and her European allies better watch how tough they’re making Greece’s austerity, or things could turn very, very foul.

Markets React Poorly to Greek Election

Well the markets didn't react particularly well to the news of stability in Greece, apparently the markets don’t like stability. In the end the results of the election are as follows:

New Democracy: 129

SYRIZA: 71

PASOK: 33

Democratic Left: 17

Communist KKE: 12
Independent Greeks: 20
Golden Dawn: 18

Although the result doesn’t look close between ND and SYRIZA, in a Greek election the first party gets awarded 50 extra seats, in terms of percentage ND was barely ahead of SYRIZA. Now the job of forming a coalition falls to Antonis Samaras, leader of ND; to achieve a majority he will need only 22 extra seats (151 seats required for a majority). It is expected that ND will get the support of pro-bailout party PASOK and marginal support from the Democratic Left.

So there should be no problem forming a coalition, but what is important here is that Golden Dawn still polled strongly at almost 7%. This is despite the assault of two politicians on live television by the spokesperson of the party and the fact that the party continue to back the assailant.

Regardless of the political impact in Greece, the economic impact is what the rest of the world is interested it. Most people were disappointed in the markets reluctance to accept that Greece was at least somewhat stable. Leaders at the G20 summit in Los Gabos, Mexico are meeting to discuss global issues; at the centre will be the world’s 35^th largest economy, Greece.  Almost immediately after the election results were in Merkel issued a statement saying the bailout deal was non-negotiable. This will not go down well in Greece, many Greeks voted for the pro-bailout parties in the belief that they would go to Brussels and negotiate a less tough deal for Greece. But don’t forget Merkel also said there would be no bailouts two years ago; there have been five since then. Most economists do believe that the austerity in Greece is too harsh, even some centre-right economists. Greece needs to be given slightly looser terms, otherwise a third bailout may be necessary. This is something that Merkel will want to avoid at all costs.

The crisis is far from over, it will continue to dominate the news for the rest of the year.

The Euro is Safe... For Now

Well it looks like Europe, and the world can breathe a sigh of relief, New Democracy is predicted to win the election. SYRIZA has already conceded defeat to their centre-right opponents. Although it looks like the Euro is safe for now, the real test will be how the markets react later today. Remember last week when everyone thought that the Spanish bailout would calm markets? Well it didn’t calm them at all, and on the first day of trading after the bailout, the markets fell significantly.

Although the markets are unpredictable, most people believe that the markets will go up today. There was a lot of uncertainty surrounding this weekend’s election and the election of a pro-bailout party will mark the end of the uncertainty.

But don’t be fooled, the Eurozone crisis is far from over, Greek debts are very high and the other PIIGS countries aren’t looking great either. Spain appears to be edging closer and closer to a bailout from the Eurozone and IMF. If the Eurozone leaders really want to give the markets confidence, then they need to show strength and resolve the Euro crisis. If the keep dragging their feet, who knows how long this crisis will last! 

The Election of the Century

It’s not often that a country of 11 million people decides the fate of the entire world. But on Sunday the Greeks get that opportunity, and although my statement does seem outlandish, it’s not far from the mark. Many economists and political pundits are treating this as a referendum on Euro membership; Greeks are faced with a choice: Vote SYRIZA and leave the Euro but cut the austerity or vote for New Democracy or PASOK and stay in the Euro but continue to suffer humiliating austerity. Not an easy choice considering the Euro is supported by 80-90% of Greeks.

Although you would be forgiven for thinking so, the Greek economy is relatively unimportant. It isn’t a large economy and most banks don’t have huge exposure to it. But it’s the contagion effect, if Greece defaults then will fear spread in the markets. Many banks will begin to default; other weak economies such as Portugal, Ireland, Italy and Spain could collapse and require new bailouts. This would through most of the world into a recession; Obama would lose all hope of a re-election.

The weight of the world is on the shoulders of the Greeks, and nobody knows what to do.

Neo-Nazi MP on the Run

Previously I have reported on the worrying rise of far-politics across Europe, including France, Germany, Norway and Greece. Unfortunately Greece has entered back into the fray with news that Ilias Kasidiaris is still at large, the Golden Dawn politician assaulted two left-wing, female politicians on live television last week.

After getting into a heated argument the facist MP threw water at Rena Dourou, a leading member of SYRIZA.  Liana Kanelli of the KKE Communist party then stood up to protest at Kasidiaris’ actions, his response was to hit her three times in the face. The assault caused protests against Golden Dawn to erupt across the country. Golden Dawn frequently tries to deny that it is a violent party and to many people this incident proves that Golden Dawn is a violent party.

Not long after the assault took place, a state prosecutor called for Kasidiaris’ arrest on suspicion of grievous bodily harm (we still have to say suspicion as he has not been convicted – despite the video). Unfortunately he has remained at large and Golden Dawn has refused to speak against Kasidiaris’ actions, despite the growing anger.

Despite the clear violation of the law and human decency it may not be such a bad thing.  Seeing the violent attack on TV has infuriated the Greeks and may cost it severely at the next election. Golden Dawn is currently polling at half of what it got at the General Election, a significant decrease. 

Red circle, the Neo-Nazi MP attacking the KKE member
Green circle, Ms Dourou of SYRIZA

The Fate of Europe in the Hands of the Irish

Polls in Ireland have just closed, turnout looks like it is extremely low possibly below 50%. The no campaign is led mainly by Sinn Fèin, whereas most of the political establishment is rallying behind the yes campaign, including the government and most of the opposition.

The no camp argues that agreeing to this is basically handing over Ireland’s independence to bureaucrats in Brussels and Berlin. Many on that side also believe that the limits on a budget deficit would prevent Ireland from leaving austerity and recession; they believe that the Irish government should be spending to create jobs and eventually help Ireland recover.

The yes camp believes that by voting for the new treaty will allow Ireland to get a second bailout from Europe, should it ever need it. They mostly also believe that austerity is the way to get Ireland out of the crisis and a budget deficit will not help Ireland’s economy grow.

So the results tomorrow will be waited on patiently across Europe and indeed the world, if Ireland votes no it will be difficult to grasp the magnitude. As Ireland is in the Eurozone it will make things more difficult for Merkel and other austerity leaders. It will also be welcomed in Greece, as this may prompt a new and more lenient treaty that would be of great benefit to Greece.

The Never-Ending Woes of the Eurozone

The never-ending Eurozone crisis has reached a new low today with the cost of borrowing for Spain rising to almost record levels, just a whisker below 6.7%. Tomorrow is also going to be an important day for the Eurozone, the Irish are going to the polls tomorrow to vote in a referendum on the new EU fiscal compact treaty. If the Irish reject the treaty, it will send shockwaves throughout Europe likely destabilising Greece and Spain even more.

More discussion has focused on the likelihood of Greece leaving the Eurozone. The Economist Paul Krugman who has written a book on, what he calls, an economic depression is becoming increasingly visible. He claims that a Greek exit would be “awful” for the world economy and that Greece may never recover, he believes that the austerity imposed on Greece and other Eurozone countries simply is not working. In the UK he is calling for the government to use the record low borrowing costs to borrow money to fund infrastructure projects and help to boost the economy.

Krugman has claimed that the crisis will send the world economy into chaos and he believes that if the leaders of Europe want the euro to survive there must be some form of political union. Although this appears unimaginable it does make sense, a political union would make it easier to spread the wealth around and allow Greece and Spain to become competitive again.

So what are the risks for the UK? Well we have very little exposure to Greece itself, but the fear of contagion if Greece defaults or leaves the Eurozone puts us at bigger risk. The exposure to Italy and Spain for Barclays, RBS and HSBC is about €10 billion each, but RBS’ exposure to the Eurozone as a whole is €70 billion. If Greece defaults and leaves the Eurozone it will have catastrophic consequences for the Eurozone. Krugman believes that unless Merkel and the Germans concede defeat and allow the Greeks to have more lenient austerity a Greek default is inevitable. 

US economist Paul Krugman

G8 Summit Crucial in Greek Crisis

The G8 meet in Camp David, Maryland, United States today. The group represents the eight most powerful industrialised nations; Canada, France, Germany, Italy, Japan, Russia, United Kingdom and United States as well as a representative from the EU. Also attending some of the G8 meetings are Brazil, China, India, Mexico and South Africa. The main focus of the meeting will be is the world’s 35^th largest economy: Greece. Obama (who is President of the G8 this year) is urging European leaders to come to an agreement to try and sort out Europe’s failing economy. Obama believes that what happens in Europe is extraordinarily important.

The G8 summit is the first meeting between Obama and Hollande, both presidents are advocates of stimulus to try and create jobs and boost economic growth. Obama calls for the focus in Europe to move away from austerity and towards the stimulus, the Eurozone is a huge trading partner for the United States and any serious trouble would throw America’s recovery off course. Obama has called on a stimulus specifically for Greece, but America will not provide a cent of this money; he believes the Germans must pay for this. Hollande and Obama are hoping that they will be able to persuade Merkel and the Germans to re-orientate Europe away from austerity.

Although Greece and the Eurozone’s woes will be the main focus of the meeting also on the table are the likes of Iran’s nuclear ambitions and the possibility of releasing oil reserves to keep the price of petrol down. Despite this there is no doubt that Greece will dominate the talks.

G8 Countries in Dark Green (EU in light green)
courtesy of wikipedia

The Continuing Greek Tragedy

The crisis in Greece continues as the three main parties have failed to thrash out a coalition agreement. They have agreed that another general election will be held in the coming weeks, this election is completely unpredictable with some experts believe that after voting for anti-bailout parties in the last election, people will move back to the centre. Yet most experts believe that the anti-bailout parties will gain more ground the next time the Greeks go to the polls.

SYRIZA leader, Alex Tsipras

If the Germans and Brussels want to avoid the anti-bailout parties winning they must negotiate ASAP with the pro-bailout parties, give them some concessions. Then PASOK and New Democracy can go to the voters and tell them that the bailout can still work, in the hopes of marginalising SYRIZA. The reality is, if SYRIZA were able to form an anti-bailout party after the next general election, then Greece would almost certainly go bust and have to leave the Euro which would have devastating affects around the EU. Spain, where borrowing is almost unsustainable already, would need a bailout immediately and any chance of a recovery in Ireland or Portugal would be out of the question. Likely Greece would drag the rest of the world back into recession. This could result in a break-up of the Euro and a destruction of the economies of the PIIGS countries, this could be worse for Germany than many other countries, as Germany’s central bank has lent €644 billion euros to other European central banks and a break-up of the Euro would mean that it wouldn't get most of that money back. Germany must defend Greece from financial collapse, otherwise the country will suffer the consequences.

European Woes Continue

Europe’s economy is going from bad to worse to awful. According to recently released figures the EU’s economy is expected to not grow at all over the next year whilst the Eurozone’s economy is expected to go through a mild recession. Spain is the latest centre of the European crisis, the government of Spain has done a review and has given a €30 billion bailout to some of its biggest banks. Yesterday one of the country’s largest banks, Bankia, was part-nationalised (45% of the bank belongs to the government now) this is putting a serious strain on the Spain’s finances as Spain has massive debts. The cause of most of Spain’s woes is very similar to what happened in Ireland, there was a gargantuan property bubble that burst, there are now vast wastelands of uninhabited apartments and home built by developers but never purchased. Bankia, lent €38 billion to property developers, €32 of which is currently problematic and Bankia may never receive the loans. In the entire banking system there is a colossal €184 billion of bad loans, with Spain’s unemployment rate at 25% and the youth unemployment rate at 50% austerity is going to cause massive pains for Spanish people. So will Spain need a bailout? It’s too early to tell at this stage but there is a chance it will, if it does need a bailout then it will become the fourth European economy that has received one. The problem with Spain is its economy is significantly bigger than the Portuguese, Irish or Greek economies and a Spanish bailout may put too much strain on the system

The problems in Greece are continuing there has been no government since Sunday and there isn’t going to be one until new elections are held. The third placed party PASOK tried to get a coalition going but failed, so now new elections are going to have to be held. What some of the centrist parties, and Brussels, are hoping is that after voting in the extremes on Sunday people will move back to the centre. If the polls are anything to go by, this will not be the case, the second placed party, SYRIZA will win more than any other party as it is polling 27% of the vote. If it does manage to get this amount of the vote then there is a serious chance that it will be able to form a coalition and thus a government. The problem. SYRIZA opposes the bailout, if it does manage to form a government and Greece goes bankrupt, this could have devastating effects on the global economy.  One of the biggest worries I have is the rise of Golden Dawn, hopefully their vote share will go down, but I fear this is wishful thinking.

French and Greek Elections

Elections in Greece and France have rocked Europe today, the markets turned down as the news of a socialist president in France came in. In Greece the majority of people voted for anti-austerity parties, yet the pro-austerity party New Democracy managed to come in first. Although New Democracy came first, they did not win a majority of seats so attempted to form a coalition but was unable to. As a result it is now up to the party that came second, the “Coalition of the left” to try and form a coalition. If no party is able to form a coalition then the Greeks will have to vote again.

The Golden Dawn Logo is
very close to the Swastika

What was more worrying in the Greek elections was the rise of the neo-Nazi party, Golden Dawn which got 7% of the vote. Golden Dawn opposes the Enlightenment and the Industrial Revolution and supports Hellenism and Greek Orthodoxy. This bizarre party is entirely legitimate and not a comedy party as you might hope. They genuinely oppose science, modern medicine and anything remotely modern, I do believe these people are beyond reasonable discussion and I hope their rise does not go beyond 7%.

Back in France Hollande has promised Europe and alternative to austerity and that there is hope for growth and restoration of Europe’s battered economy. Despite having a radically different viewpoint to Merkel they have both stressed the importance of the Franco-German relationship and that it will always remain amicable.  Most people do believe that even though Hollande and Merkel have difference opinions they will try and work together, after all both people only want to keep the Eurozone strong and continue with the European project… They just have very different views of how to get there.

The new face of France...
and Europe?

Default Staved off... For Now.

Last night European leaders debated on whether or not to give Greeks the massive €130 billion bailout, they debated for 14 hours but finally announced that they would give the Greeks the money. The markets responded well to the news, but Greece is far from being in the clear. The kindest estimate suggests that Greek debt will go down to 120% of GDP in 2020, that’s eight years to get to an Italian level of debt. Other projections put them at 140%, if things are bumpy and 160% if things are bad. The 2020 estimates also include that the current level of austerity is maintained for eight years, we’ve seen how the Greeks in Athens reacted to the recent austerity bill. People would be mad to think that the Greeks will take more austerity lightly; how far down the path of violence will they go?  It’s certainly a dangerous situation that will probably get worse before it gets better. The approaching elections will also cause nervousness amongst the creditor nations such as Germany, the Netherlands and Finland as a new government could overturn the austerity package and take default. It would be like Lehman’s brother crash all over again, but the immediate result would be much more devastating for Europe, especially the remaining PIIGS countries.

Cracks are also beginning to emerge in the creditor nations over sticking to austerity. Members of Angela Merkel’s party are suggesting that an alternative to austerity is required. The leader of France’s presidential election is a socialist who wants stimulus, not austerity. Within a year austerity could be replaced with stimulus and then maybe Europe could enjoy American levels of growth! 

Greece Needs a Stresemann

In 1923 Germany was experiencing hyperinflation and its economy was in tatters. Then along came Gustav Stresemann who turned Germany around, brought down its debt and saved the country from complete collapse. Six years later he died, just weeks before the Wall Street Crash, if he had lived Hitler may never have risen to power and WWII wouldn’t, therefore, have happened.

This is exactly who Greece needs right now, the country is collapsing, the politicians are inept, the Eurozone leaders don’t know what to do and everyone is panicking. The riots yesterday show that Greeks aren’t prepared to take more austerity and any attempt to get another package through parliament could spell revolution. The middle class, working class and business class are united in their opposition to the government’s austerity plans. Of 300 MPs, 101 voted against the measures or did not attend parliament, Greece simply cannot take more austerity. If new elections were to produce a Stresemann then the panic could end, but the chance of that is small. Instead of a Stresemann, all Greece needs is a strong leader who will stand up to Merkel and Sarkozy and say no to more austerity. Germany needs to realise that in order to keep the Euro alive they must finance the Greek recovery. Otherwise the inevitable default would change Greece into a wrecking ball destroying Italy, Spain, Portugal and Ireland, sending the world into recession and the Euro into history.

Germany needs to look to America, the USA has one of the largest deficits of any western nations, yet it is managing to grow. This is largely due to Obama’s stimulus package. Look to Ireland, so far Ireland has taken austerity well (in that there have been no major protests or riots) and yet its economy is still faltering and it could head back into recession if something isn’t done. Germany needs to end its experiment with austerity and change course to prosperity through a stimulus package. Four years of austerity has only produced perpetual recession in Greece, little economic growth in Europe and a decline in European influence. For the sake of this continent Merkel needs to wake up and stop the austerity.  

The man who saved Germany in 1923, Gustav Stresemann. Unless Greece or Europe finds a similarly able politician collapse is almost inevitable

Crisis in Greece Deepens

Tonight Greece experienced its worst riots in months after parliament passed the new austerity measures forced on their government by the EU. Greece needed to pass the €3.3 billion of cuts in order to get a €130 billion bailout from the EU to avoid defaulting on its debts and exiting the Eurozone. Recovery is nowhere near the future for Greece, its bond yield is at 34% (the ‘danger zone’ is around 7%) and its economy is deep in recession. Unemployment stands at around 17%, the cuts will add even more people to the unemployment register, pushing Greece further into recession.

Rioters in Athens are fed up with the austerity imposed on them

Greeks are getting fed up with the cuts imposed on their country. They feel like democracy does not exist any longer and that the Eurozone leaders, particularly Angela Merkel, are the dictating Greek economic policies. Although Eurozone leaders rightfully fear the dangers of a Greek default and exit from the Euro, the damage it would do to many of Europe’s banks and how the contagion could spread to other weak countries such as Italy and Spain. The danger is that these cuts will put Greece in a position from which it will not recover for a generation, if ever. Merkel and Sarkozy need to be wary of the damage their cuts to Greek spending could do to the wider Eurozone.

The Eurozone

This year saw the Eurozone go to the brink of collapse and it still hasn’t fully recovered. The issue was over the level of government debt, most worryingly in the “PIIGS” countries, the less than complimentary acronym for Portugal, Ireland, Italy, Greece and Spain. The turbulent year for the economies of Greece and Italy pushed out their heads of government and replaced them with non-elected technocrats. Many people feel that this threatens the Western ideal of democracy. Within a year of each other Ireland, Greece and Portugal all had to ask for bailouts from the EU/IMF to keep their economies afloat. Greece was constantly in our news especially in the latter half of our year as the country tinkered towards the edge of the abyss.

2012 will be an interesting year for Europe, each economist predicting different scenarios ranging from a complete Euro breakup to a tighter “Euro Compact” of the stable northern countries or just with a few of the peripheral countries leaving. It is difficult to tell what will happen in 2012, but nonetheless it will be a make or break year for the Eurozone.

A map of Europe

Red indicates Eurozone members

Blue indicates non-Eurozone members of the EU

White indicates European countries not in the EU

Grey represents non-European countries