11 Quotes That Show How Worried The Financial World Is About Europe Right Now
The recent elections in France and in Greece have thrown the global financial system into an uproar. Fear and worry are everywhere and nobody is quite sure what is going to happen next. All of the financial deals that Greece has made over the past few years may be null and void. Nobody is going to know for sure until a new government is formed, and at this point it looks like that is not going to happen and that there will need to be new elections in June. All of the financial deals that France has made over the past few years may be null and void as well. New French President Francois Hollande seems determined to take France on a path away from austerity. But can France really afford to keep spending money that it does not have? France has already lost its AAA credit rating and French bond yields have started to move up toward dangerous territory. And Greek politicians are delusional if they think they have any other choice other than austerity. Without European bailout money (which they won’t get if they don’t honor their current agreements), nobody is going to want to lend Greece a dime.
And all of this talk about “austerity” is kind of silly anyway. It isn’t as if either France or Greece was going to have a balanced budget any time soon. Both nations were still running up huge amounts of debt even under the “austerity” budgets.
But the citizens of both nations have sent a clear message that they are not going to tolerate even a slowdown in government spending. They want to go back to the debt-fueled prosperity of the last several decades, even if it makes their long-term financial problems a lot worse.
Unfortunately, as I mentioned earlier, Greece does not have that option. Without the bailout money that they are scheduled to get, Greece does not have a prayer of avoiding a disorderly default. Private investors would have to be insane to lend Greece money if the bailout deal falls apart. Greece desperately needs the help of the EU, the ECB and the IMF and the only way they are going to get it is if they abide by the terms of the agreements that have already been reached.
The only way that Greece can avoid austerity at this point would be to leave the euro. Nobody would want to lend money to Greece under that scenario either, but Greece could choose to print huge amounts of their own national currency if they wanted to.
The situation is different in France. Investors are still willing to lend to France at reasonable interest rates, but if France chooses to run up huge amounts of additional debt at some point they will end up just like Greece.