Why Greece Won't Exit The European Union

Includes: ERO, EZU, FXE
by: Rupert Nicholson

The markets have been in turmoil recently over the political instability in Greece. SYRIZA, an anti-bailout party, received the second highest portion of the vote, and the second highest amount of seats. New Democracy and Pasok, the two architects of austerity, did not have the required 150 seats to govern, they only had 149 in a cruel twist of fate.

Recently, SYRIZA has made headlines because it had a significant lead in the polls after the first election. It is an attractive option for the average voter because the party seems to be offering the perfect option. SYRIZA has said that it will put an end to austerity while keeping Greece in the European Union and preventing a default. Greeks voted for it in the first round because they were fed up by the actions of the old parties and were convinced by the vision of SYRIZA's charismatic leader Alexis Tsipras.

However, the latest round of polling has shown New Democracy taking the lead again. More importantly, New Democracy and Pasok now would have enough seats to form a pro-bailout governing body. The average Greek is starting to realize that SYRIZA's vision is impossible. Angela Merkel, the German Chancellor, has made it crystal clear that Greece must stick to the bailout terms or they will not receive the bailout payments. She has even suggested holding a referendum on remaining in the EU at the next election. This has sent a clear message to Greece that what SYRIZA is proposing is impossible and therefore they are turning back to New Democracy and Pasok. The tide seems to be turning in pro-bailout favor which will do no end of good for the markets, both in Europe and the U.S..

Consequently, the first election seems to have been a way for the Greek people to send out a clear message to the government about their frustration. It was a protest vote which saw other radical parties such as Golden Dawn win large shares of the vote. Golden Dawn is a radical far right party which has used the Nazi salute in parliament since being elected to parliament.

Lucas Papademos, the former Prime Minister, nicely summarized what a future with SYRIZA is likely to entail when he said "Some would like to see Greece become weak and out of the eurozone and the European Union. Some are expecting to take advantage of the chaos that would follow a humiliating exit of the country from the eurozone." The simple fact is that without the European Union and its help, Greece will collapse. The Greeks have woken up to the fact that this is what will happen with a government spearheaded by SYRIZA.

Greece also is potentially the key to European stability. If Greece leaves the European Union, then this will open the door for other countries to leave. Greece's fate is very much tied to European stability which is something that has become increasingly important since 2007. Therefore, Germany and other European countries will do everything in their power short of stopping the forced reforms to stop a 'Grexit'.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.