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Update on Greece

With the results of the Greek election just in, here are answers to some questions you may have.

What was the election outcome?

The general election on 17 June was the Greeks’ second attempt in less than two months at electing a workable government. The conservative New Democracy Party gained just under 30% of the opular vote. The far left-wing Syriza took around 27% and the moderately left-wing Pasok about 12%. It’s likely that New Democracy and Pasok will form workable coalition government.

A different election outcome would have been much orse. Awin by Syriza, or yet another failure to form a government, would have led to fears that
Greece would soon default on its debts and leave the eurozone.

What is the likely future for Greece?

Both New Democracy and Pasok are committed to staying in the eurozone and continuing Greece’s debt reduction program in return for bailout unding. However, they’ve also said they will enegotiate the terms of the earlier agreement with the “troika” of the European Commission, nternational Monetary Fund and European Central ank. The debt reduction program has made economic conditions in Greece even worse. In these circumstances, it’s very hard for the Greek government to raise enough revenue to meet its budget targets. And it’s not certain the troika will significantly relax the terms of a debt reduction program. The election has changed
nothing in Greece’s finances. The level of public
debt is just too high, even after the restructuring agreed earlier this year. The debts can’t be refinanced at anything like a reasonable rate of interest, let alone ever be repaid. The
obsession with austerity − trying to slash and burn a path to prosperity − is failing. We think further debt restructuring in Greece is essential, and it’s very likely that Greece will eventually leave the eurozone.

What about the rest of the eurozone?

It’s impossible to predict how events across Europe will unfold. The most optimistic path would
be undertaking substantial debt restructurings (managed defaults), centralising borrowing across the eurozone and creating a much bigger role for the European Central Bank as a lender of last resort to European banks and governments. All of that’s difficult, and policymakers don’t seem near
ready for it. At the other extreme, there’s the risk of a disorderly break-up of the eurozone, unmanaged defaults on debts and a return to
national currencies.