If you thought that the Greek debt crisis was over; think again. Tomorrow, the Greek parliament will try, for the third time, to agree on who will be the next president. If parliamentarians cannot agree (and that now seems likely) we are headed for the first potential rock in the road to recovery for 2015. There is a real danger that the Greek debt crisis will emerge with a vengeance and, once again, throw world financial markets into turmoil.
Under the rules of the Greek constitution, if no candidate
receives an absolute majority, parliament will be dissolved, and there will be
a general election, most likely in early February. If that happens, all signs point to a victory by
Syriza, a left of center party that proposes to renegotiate the Greek debt.
A Syriza victory would
force the core Euro countries to decide either to give up on the project of
European integration, or to move to the next stage of full scale fiscal union
in which German taxpayers assume responsibility for Greek debt.
If the Euro breaks
apart, the fallout will be global. The world economy has been hit by a falling
demand for raw materials and oil is trading at less than US$60 a barrel. Some of this is caused by newly discovered proven reserves and that is a good thing. But Jim Hamilton has argued that falling world demand is a big part of the reason for lower oil prices and that does not bode well for a truly global recovery.
The US economy has
been the single flickering light in a dark sky. If the Euro collapses, the knock-on-effect will derail the US recovery and send the entire world economy back into recession.
Is a Greek default and a breakup of the Euro the most likely outcome? Probably not. But it is the first of many building storms that the global economy will need to weather in 2015. All eyes on Greece tomorrow!