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Voters reject austerity

Public opposition to fiscal austerity in Europe crystallised in May, as voters in Greece and France demanded an alternative approach to addressing the debt crisis. The re-run of elections in Greece on June 17th is widely seen as a referendum on its continuing membership of the Eurozone, with EU officials openly planning for a possible exit. The increased probability of Greece’s departure from the single currency prompted a widespread retreat from risk, as investors sought safe havens from the possible consequences of further turmoil in the region.

Deposit-holders have steadily withdrawn funds from Greek banks, raising fears of a bank run which could spread across southern Europe. According to European Central Bank figures, Greece had €160 billion of bank deposits at the end of March 2012, down some €75 billion from the peak in 2009.

Our central view is that the renewed crisis will, once again, force sufficient political compromise to avoid a default by Greece. The financial and political costs of a disorderly Greek exit are simply too high for Greece and for the other members of the Eurozone.

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