Politeía Digest

Quis custodiet ipsos custodes?

The WSJ-E: World Braces For Test of Euro

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By Stephen Fidler

BRUSSELS—Europe, facing a momentous Greek election after a week of mounting financial stresses, is preparing for what some financial analysts are calling its “Lehman moment”: the prospect that Greece could leave the euro currency union following Sunday’s vote. Yet, European officials say that even an election that results in a Greek embrace of the euro and an acceptance of the terms of Europe’s March bailout of the country may only temporarily ease pressure on the euro zone, whose crisis-management strategy many analysts say lies in shreds. Borrowing costs in Spain and Italy rose sharply higher in recent days despite efforts to insulate Spain, the euro zone’s fourth-largest economy, from the effects of Greek uncertainty by lining up a bailout request last weekend for as much as €100 billion to boost the capital of Spanish banks.

“We are back in the danger zone,” said Jean Pisani-Ferry, director of Bruegel, a Brussels-based economic think tank.

Financial markets rallied modestly Friday after unofficial Greek polls suggested the pro-European New Democracy party would claim victory in the national parliamentary elections Sunday. Officials expect a government led by the party wouldn’t insist on a radical renegotiation of the terms of the bailout. With a two-week blackout on polls, investors have little new data to help them guess whether Greek voters will support New Democracy or its rival, radical leftist Syriza party, which has insisted it would stick with the euro but rejects the bailout agreement. Underlining Greece’s economic challenges, Europe’s biggest retailer, Carrefour, said Friday it was pulling out of Greece by selling its stake in a supermarket joint venture to its local partner, becoming the latest and largest company to get out of the struggling country.

While senior European officials insisted they didn’t anticipate a sudden Greek exit from the euro, major central banks have lined up measures to calm markets in case the election result unsettles markets and further depresses growth. Read more in The WSJ-E.

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Written by Theophyle

June 16, 2012 at 9:34 am

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