Greece passed their austerity plan this morning in what should essentially solidify the next few steps for funding the country in the near-term. This is a positive for obvious reasons as it avoids the worst case scenario of default and contagion. But the situation is growing increasingly tenuous.
Rioters and activists are building momentum against future austerity in the country. The Greek people are doing what I said the Irish should have done long ago – they are beginning to rise. This is empowering in that the Greeks are attempting to voice their displeasure with the idea that they are forced to suffer in order for foreign bankers to survive. This is the core vs. periphery problem in real-time and the momentum is turning against the core as the citizens grow increasingly cognizant of what is going on. This is, in my opinion, the greatest risk to the situation and makes it highly combustible.
As I’ve long said, the longer Europe kicks the can and avoids an inevitable long-term solution, the more the situation will boil on the streets and the more combustible the situation will become. Ultimately, the people hold the cards here and if they truly want to they will eventually vote the sitting members of Greek parliament out and replace them with members who they know will vote against future austerity. Opposition leader Antonis Samaras has called for early elections. Papandreou is opting for a referendum this autumn.
In short, we’ve kicked the can one more time, but the situation is growing increasingly unstable. Equity markets can breath a sigh of relief for a few months. But expect the situation to re-emerge later this year. If we begin to see signs of a real parliamentary change this has the potential to become a very very unstable economic event.