Investing

The Rejection of Austerity Begins

With national elections in Greece only a few weeks away, the coalition that rules the nation finds itself in trouble. Politicians who supported austerity measures as a means to get a bailout of the country’s finances face challenges from candidates who say the government went too far. The reaction is only natural. Many voters have been stripped of benefits, had salaries cut or have lost some form or another of their social safety nets. The upcoming election could sweep new members into parliament, and these new members may try to repeal or modify austerity agreements.

Greece is not the only nation that faces angry voters. Similar circumstances could affect elections in Portugal, Spain and even Italy. A referendum will be held in Ireland to seek support for the nation’s treaty with the European Union, a treaty that is the basis of Ireland’s bailout.

The rounds of national elections could be a year off or more, but this may make it more difficult for current leaders to keep their positions. Austerity’s bite could be felt the most in a few more quarters as governments cut expenses, which may push some nations into recessions, increase unemployment and cut the social services to the elderly.

The Greek election probably will be a signal to voters in other austerity-burdened nations. If opponents of austerity in Greece gain power and challenge the southern European country’s pact with the European Union, European Central Bank and International Monetary Fund, it likely will embolden voters in other nations to act similarly.

What cannot be forecast is what the reaction of EU leaders will be if a nation reneges on its negotiated obligations. Will the EU cut these countries off from further financial aid? This could cause a permanent fracture in the alliance. Or will the economically stronger nations and the IMF decide that the union is more important that the enforcement of austerity? The answer to those questions may determine the financial alliance that has been in place since the Maastricht Treaty established it in 1993.

Douglas A. McIntyre