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Recent Greek Elections Won’t Be an Immediate Cure

jim mccaughan's picture

With the New Coalition winning majority in Greece today this means likely compromise between Athens and Berlin. A new Greek government will be able to claim an easing in austerity. And the Germans can let the EU funds flow, while claiming reform.

Unfortunately, relief is likely to be very temporary. The problems of a huge debt load, and insufficient competitiveness to pay it back, remain for Greece and indeed for Spain, Portugal, and Italy. Banks and sovereigns in southern Europe are bankrupt, and no amount of liquidity will cure that. Recognition of the insolvencies and recapitalization of the Eurozone financial system are needed for a cure. Also necessary is labor market reform. This could all take years of volatility and economic troubles before it gets done.

On the bright side, the US continues to show signs of solid but slow growth. In the likely absence of a disorderly default in peripheral Europe, US investing continues to look quite attractive.

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