Greece’s Impending Exit from the Eurozone

Alexis Tsipras represents Greece's anti-austerity faction

The last week has featured frantic post-election efforts by the Greek political parties to form a governing coalition.

First up was Antonis Samaras of the New Democracy. His failure to create a governing coalition was followed by that of the new heavyweight on the political scene, Alexis Tsipras and SYRIZA – the anti-austerity left wing coalition that came second in the election.

Socialist leader Evangelos Venizelos, whose PASOK party finished a humbling third in Sunday’s election was also unable to form a governing coalition.

Currently, Greece’s President, Karolos Papoulias, is making a last-ditch effort over the weekend to form a national government, but this too, looks destined to fail.

Greece will therefore likely have a new election in one month that will result in SYRIZA gaining even more seats in parliament.

The polls show that an overwhelming majority(78.1%) of Greeks reject the bailout but want to keep the euro.

In other words, Greeks want to eat their cake (keep their spending and inefficiencies) and have it too (the Euro).

The truth is that Greece will almost certainly exit the Euro – an inevitability the EU is finally beginning to recognize.  At a certain point, they cannot keep throwing good money after bad.

Even if Greece’s parties agree to continue the pain of austerity (which they won’t), their debt to GDP ration may still be north of an unsustainable 160% later this year.

Europe is therefore facing an immediate dilemma, which is managing Greece’s exit from the Eurozone. They also face a future dilemma, namely the apparent futility of austerity, which seems to send countries like Greece and Spain into a downward death spiral.

It will soon be; welcome, New Drachma, bye-bye Euro.