June 18, 2012
Now that Greek voters have done the right thing, it’s Angela Merkel’s turn to tell the German electorate a few home truths about the euro.
Sunday’s narrow victory for pro-bailout parties in Greece offers heartening proof that voters can reject comforting delusions -- such as the defeated Syriza party’s idea that Greece could renege on its bailout terms and stay in the euro -- provided that politicians take a clear stand to explain reality, warts and all.
The election won no more than breathing space for Greece. The victory for the conservative party, New Democracy, won’t fix the euro’s flaws or make it any more realistic for Greece to bounce back from recession if the letter and timetable of its austerity package stay unchanged. Markets think Greece might still crash out of the euro, with contagion to follow: The blink-and-you-missed-it duration of the rallies in Spanish and Italian bond markets Monday morning made that much clear.
Still, something potentially important has changed. It will be clear that any decision for Greece to default and leave the euro will be made not just by recalcitrant Greeks, but also by creditors, in particular Germany, who refuse to make the program feasible. So if -- and that’s a significant “if” -- Merkel and her Christian Democratic Union want to keep the euro area intact, they’ll have to make decisions they’ve resisted, and for which they’ll pay a price at the ballot box.