Dispatch: Greek Austerity Measures and the Wider Eurozone Threat

Analyst Marko Papic examines the upcoming parliamentary vote on Greek austerity measures and cautions that the real threat to the eurozone is likely to come from Italy and Spain.

Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.

As Greek parliamentarians get ready to vote on the new set of austerity measures, Athens continues to be in the focus of the global markets. The problem is that Italy and Spain are slowly coming into focus as well.

The debate on a new set of austerity measures has started in the Greek parliament. The vote in the midterm plan is set to take place on June 29. The application law on how to actually implement the plan will take place on June 30. STRATFOR’s forecast has thus far been that the Greek government would hold and win the confidence vote, which already happened, and that the austerity measures would ultimately be passed. Greek Prime Minister George Papandreou has 155 members of parliament. Two of his 155 have said that they would not support austerity measures. Seeing as Papandreou needs 151 votes to pass the austerity measures, this makes the situation highly volatile. Adding to this volatility is the fact that the Greeks are planning for a two-day strike on June 28 and 29. If the protest and the strike become considerably violent, it could have an effect on how the members of Parliament see the situation.

It is important to understand that for Greece, the EU is not just about prosperity and a quality of living. Greece has a strategic issue on its peninsula, and that has to do with its continuous rivalry against Turkey. In the 1970s and ’80s, Athens could balance Turkey on its own. However, as Turkey has grown into a regional power in the 21st century, the balancing act for Athens has become more difficult. Therefore, for the Greeks, being part of the eurozone and the EU is not just about social welfare or about quality of life; it is also about strategic imperatives. As such, they may be willing to undergo a considerable amount of pain before they break. Furthermore, considering the growth of Greek wages over the last 20 years and considering the improvements in the economic situation, the actual austerity measures are not really sliding the Greeks into an unknown economic collapse. Nonetheless, if the new austerity measures are implemented, and particularly privatization of public assets, there could be considerable pain because a lot of people would be looking at necessary layoffs.

As such our annual forecast was correct in pointing out that in 2012, we do not see a fundamental shift in the Athenian policy towards austerity measures, both because the public angst would not be overwhelming and also because there doesn’t seem to be a political alternative to the current center-right/center-left choice of governments, and would follow most eurozone directives. In the short term, therefore, we do not see the Greek situation as critical. It could develop into a very critical political situation underground. However, what is very dangerous is the fact that the contagion seems to be already spreading to Spain and Italy, with the markets punishing both in today’s trading, and that is something that the eurozone would have a very difficult time containing because Italian and Spanish economies together are too great for any bill or funds to take care of.