Chart of the Week: Greek Election Results Don’t Resolve Eurozone Crisis
Pro-bailout/Pro-austerity parties triumph at the polls, but Greece and the eurozone face big hurdles.
The victory at the ballot box in Greece yesterday of pro-euro, pro-bailout forces led by the New Democracy party sparked a brief – a very brief – relief rally in global financial markets. Still, the initial euphoria that Greece may finally have a government whose policies are likely to be more in line with what the country’s eurozone partners want to see, faded rapidly. While it is likely that New Democracy, along with Pasok and another party, will have enough seats in the Greek legislature to form a coalition, this isn’t the beginning of the end. It is, as Winston Churchill famously declared, more likely to be the end of the beginning.
As this week’s Chart of the Week shows, one of the problems the country’s newly elected government will have to grapple with is the fact that it has a hefty structural trade deficit. Compared to other eurozone members, it is a relatively closed economy, the value of its exports are only 24.8pct of GDP. That’s higher than the 19% recorded in 2009, but the deficit in goods and services trade is still in the order of 10%. Given that the coalition partners pledged during the election campaign that they would stick to the austerity regime demanded of them under the terms of the country’s economic bailout, Greece will be reliant on external trade to generate any growth in the short to medium term. And if Greece is to export its way back to economic growth, that will require more than just a focus on its traditional shipping industry, and convincing more tourists to visit the country.
The contrast between Greece and Ireland is the most striking. While the Irish economy also continues to struggle, its exports are remarkably robust. With overseas sales of goods and services topping 100% of GDP, the Irish are emerging as the poster children of post-crisis recovery, able to export their way to renewed growth.
With the elections now behind us, the markets are likely to begin to focus on what comes next. That means questions like how Greece will be able to juggle austerity with some measure of growth will become critical in the coming weeks and months – and that investor attention will return to the other problem economies of the eurozone. Bond prices in both Spain and Italy were falling, sending yields higher, in morning trade in Europe, as the initial reaction of relief that Greek voters managed to postpone a day of reckoning faded. One short-term problem has been resolved; now it’s up to policymakers to move on to the next and – hopefully – find a long-term solution.