It is possible, that the Euro-zone begins to unravel in the next few weeks and months, starting with Greece. Yesterday, despite riots outside the Greek Parliament, Greece lawmakers passed an austerity bill which will further decrease salaries and pensions, raise the retirement age, and increase taxes. Greece needed to pass the bill in order to receive the next round of bailout loans. Greece politicians have said that Greece will go bankrupt on November 16th without the next round of bailout funds. In addition, Greece will need to pass a budget vote for 2013 on Sunday. The budget will layout the basis for which the country’s creditors will make a decision whether or not Greece deserves the next round of bailouts.
Even if Greece passes the budget there is a chance that the troika of debt inspectors from the EU, IMF, and ECB may not think Greece has done enough to deserve the next round of bailouts. Then there is the issue of all of this being reviewed, voted on, and approved by next Friday. With 6 consecutive years of recession, 25% unemployment, numerous defections from members of Greece’s parliament and political parties, and Greek citizens rioting, I am finding it increasingly unlikely that all of this gets done in time to avoid a Greek default. Furthermore, how long can Greece continue to pass austerity measures to receive bailouts at the expense of the future before the Greek people overthrow the government or before the creditors decide Greek is not a suitable credit?
Perhaps in the next few weeks and months, the Euro-zone will begin to unravel, beginning with Greece. If Greece did default or return to the drachma, the IMF and ECB would need to go into damage control to try and avoid the contagion from spreading to Spain, Italy, Portugal, Ireland, etc. I am not sure what the plan would be to stop the contagion from spreading, but I am confident that it would be a very difficult task. It is sure to be an interesting next few weeks in Greece and Europe.