Political uncertainty may be the new name of the game for the euro as Greece started one of the most pivotal municipal elections in its history on Sunday. Two parties with two different stances. What's on the line for Greece? A shot at immunity from sovereign debt default.
Prime Minister George Papandreou heads the Panhellic Socialist Movement (PASOK) Party, which is the faction pushing for tough austerity measures to keep Greece from bankruptcy.
Going head-to-head against him is conservative opposition leader Antonis Samaras of the New Democracy party, who forefronts the resistance against the budget cuts imposed by the European Union (EU) and International Monetary Fund (IMF).
So what's up with all the drama in this year's regional elections?
Well, a few days ago, Papandreou threatened to call a snap election if his party doesn't do well in the municipal level. Apparently, PASOK was only projected to win 5 out of 13 races for the regional governor, which was a far cry from the party's 13/13 score 13 months ago (What a coincidence!).
Is Papandreou just being a sore loser, or is there more at stake? My forex spies recently told me that the fate of the Greek economy may lie in the results of the elections. Yikes!
Since Greece agreed to carry out stricter austerity measures in exchange for the 110 billion EUR bailout package, it's crucial for the government to have the public's support in implementing its money-saving plans. It's the ultimate trust test for Papandreou's administration! Duhn duhn duhn duhn.
If Papandreou's PASOK Socialist party fails to secure a clear victory, it could result in a political situation similar to the U.K.'s hung parliament dilemma. This means that PASOK's austerity plan would be met with a lot of opposition from the Democratic party.
Many are worried that this political stalemate could lead to further delays in implementing policies, which could prolong Greece's stay in this sovereign debt nightmare. Kinda bearish for the euro, don't you think?
On the other hand, as I mentioned earlier, a Socialist party victory would show that the public trusts the current government could resuscitate Greece's finances. This would ensure that the 110 billion EUR bailout program from the EU and IMF would stay on track, and that roadblocks in passing legislation could be avoided. If this happens, the Greek economy could have a better chance of surviving, erasing fears that the country could be booted off the euro zone.
In my humble opinion, the euro would be better off with stability rather than political uncertainty any day.
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