The only people who like austerity measures are major investors in sovereign funds. By imposing austerity measures on a long-suffering public, budget deficits can be paid down to more reasonable levels. This means that investors can have more confidence that the nations in question are going to be good for the money that they are borrowing. In turn, this means that the yield on sovereign debt is kept reasonable. If confidence is lost, yields rise precipitously and the borrower’s ability to meet their obligations is called into further doubt, kicking off a vicious circle.
The Greek people have made their frustration with their leaders clear in an indecisive election that saw the proponents of austerity taking a blood-bath, but without a clear mandate being given to anti-austerity left-wing politicians. The dilemma facing the Greeks is that the vast majority of them wish to stay within the Euro zone, but it is increasingly clear that a refusal to honour existing commitments will lead to Greece being evicted from the Euro.
On Friday, Chancellor Merkel called upon the Greek president to hold a referendum on Greece’s continued use of the Euro alongside the general election which will take place on 17th June. Heaven forbid that Mrs Merkel would interfere in the affairs of another sovereign nation, but the call spells out to the Greeks that they are faced with a stark choice.
Not to be outdone, British PM, David Cameron, said that in his opinion the Greek national election amounted to a referendum on Greece’s continued membership of the Euro, speaking at a Nato summit which followed on from this weekend’s G8 summit.
At the summit, President Obama called for the EU to focus on jobs and growth. The group committed itself to the promotion of growth and fiscal responsibility and expressed their desire to see Greece remain in the Euro. It looks as if the world’s leaders are positioning themselves for a dilution of austerity to a more human face. The Greeks are being left in no doubt about the choice that faces them by the world’s leaders – even if Greek politicians had failed to appreciate the implications for themselves.