Conundrum

Call it the Greek Conundrum. Or, perhaps, the Gordian Knot.

Just days after Socialist candidate Francois Hollande ousted Nicolas Sarkozy from the French presidency, the Greeks voted to, well, have no government at all.

Suddenly, the fragile arrangement that kept southern European countries from defaulting and restore some semblance of stability to the Eurozone appears all the more precarious.

The new French leader seized victory in the polls by tapping into the grievance of ordinary Frenchmen chaffing at the pain caused by austerity programs as well as the cost of bailing out imprudent neighbors. How, exactly, he intends to produce growth without compromising fiscal discipline is still an open question. Since defeating Sarkozy, Hollande has markedly toned down his policy utterances.

For their part, Greek voters drastically cut down the share of the main right-of-center and left-of-center parties that have been in a historic coalition to pull the country out of the financial mess it is in. The share of the extreme right, neo-Nazi party improved along with the share of the extreme left party. Both extremist groups advocate rejection of the terms of the European bailout package that imposed tough conditions on the Greek public.

The outcome of the vote now prevents the mainstream parties from weaving together a new government. The extreme left party, at this writing, was given the mandate to form a government. It is unlikely they will be able to do that either.

The talk in Athens now revolves around the formation of an interim government of national salvation to hold power until new elections could be called. That might be the only option — although it is not a guarantee that a critical mass of the Greek public might form to support austerity and the terms of the bailout package cobbled by the hard work of Angela Merkel and Nicolas Sarkozy.

The last elections nevertheless unmasked the folly of those extremist parties riding the populist wave of Greek discontent by proposing an unworkable formula. Their (leftist and rightist) platforms feature the same demand to reject the terms of the bailout package.

If they do that, Greece will be left without financing. At its present state of affairs, there is no way Greece can raise money from the open market — except by paying astronomical interest rates reflecting the high risk of lending to a country that is basically bankrupt. They either accept the EU-IMF bailout package (with all its conditions regarding fiscal discipline) or flush themselves down the drain.

Dropping out of the European single currency and resurrecting the old Greek drachma is not an option either. There is nothing to support the drachma, no gold hoard nor any respectable foreign currency reserve. If it is re-adopted, its exchange value will likely drop through the floor, making life even more miserable for the Greeks.

The only workable option for the Greeks is to remain within the Eurozone and accept the generous bailout package (along with all the conditions). There is no other option, unless the Greeks are thinking of moving to another universe.

Hopefully, the Greek public will soon realize the fraud peddled by those parties exploiting the false hopes of a despairing people. The last elections showed them vulnerable to false prophets.

While the Greeks think long and hard about the sad future they must sort out, the global markets are roiling. The results of the French elections, the unseemly outcome of the Greek vote and the troubles confronting a major Spanish bank brings Europe to the fore once more. That financially troubled continent has been the epicenter of global uncertainty lately.

The euro tumbles against all other currencies. Europe’s stock markets plunged in the red. The contagion rumbled through North American and Asian markets.

Our own stock exchange was affected by the financial tensions in Europe. In the wake of the two European elections, the Phisix took successive days of losses.

There is no quick solution to the European financial mess, unfortunately. It will take many years of careful rebalancing to restore the continent to financial health. The rebalancing will often be painful for ordinary Europeans. They will pay more taxes and deal with depressed wages. Unemployment will be nearly intolerable for many years to come.

The difficulties imposed by the process of rebalancing will create more political upheavals than we have already seen. The political fallout adds to the uncertainty of an already difficult process.

Rebalancing pits the requirements of fiscal discipline against the populist urge for instant gratification. Since all the member-economies of the Eurozone are democracies, governments trying to impose fiscal discipline could be rejected in the polls. Sarkozy, for instance, was the eleventh Eurozone leader dislodged from office since this episode of financial difficulty began.

After what happened in Greece this week, the really troubling question is whether the path of fiscal discipline can move forward at all, considering voter temperament. When budgets need balancing, governments either raise taxes or cut spending. Either way, they anger their voters.

The nightmare scenario spooking markets everywhere involves European voters throwing out one sensible government after another, leading to the sort of political paralysis we now see in Greece. It was bad enough that Greece was trying to wobble through its financial difficulties with a weak coalition government leading the country. It is worse now that Greece could not even form a government.

The political conundrum in Greece will, everybody hopes, not become a contagion. That will only aggravate the complex financial challenge.

Voters there must soon understand that not every right solution is pleasant.