After months of political turmoil, a slim majority of Greek citizens voted for the center-right New Democracy Party in a signal that Greece will stick with the euro zone in spite of widespread opposition to financial austerity policies imposed by the EU in the face of uncontrollable debt.
World markets reacted cautiously but favorably to the news, which turned the tables in the wake of last month’s vote in which a sizeable majority of Greeks voted for the left Socialist Party, which promised to roll back austerity policies and press the EU for better repayment terms for loans. Investors appeared cautious about the news, in part, because of the volatility of the Greek situation. A large and vocal portion of the population blames the economic catastrophe on the financial collapse globally and political corruption locally, leading to massive ongoing protests and violent clashes with police in that country.
However, in mixed news Spain announced over the weekend that its borrowing costs have already exceeded its ability to pay back loans, in spite of the widespread and harsh austerity measures imposed there. Along with that country, Italy similarly appears to be on the edge of bankruptcy as its borrowing costs soar and credit rating slides. Although EU officials claim the euro zone will maintain its integrity, increasing doubts about the ability and willingness of countries like Germany and France to extend large lines of credit indefinitely to countries with terrible records for keeping balanced budgets, collecting taxes, and living within their means.
At the G20 meetings this week in Mexico world leaders are expected to encourage EU leaders to act quickly and develop a comprehensive plan for bringing its debt under control and paving the way for a more stable financial framework. Otherwise, mounting debt and the potential bankruptcy of some of the world’s largest economies threatens to not only to frustrate an economic turnaround globally, but may plunge them—and the rest of the world—back into recession.