Despite the moderate pullback in the markets, the United States economy keeps plugging along – more or less – as it has for the past several years. The road is certainly bumpy – and the markets have borne a fair pullback over the past few weeks – but there aren’t any overt catastrophes in the near future. In contrast, the European continent has been the source of a great deal of economic strife. Perhaps the biggest news has been the election of Alexis Tsipras in Greece – a left leaning populist who was put into office on the promise of easing the austerity measures.
When the Eurozone crisis was heating up back in 2011, there was a real possibility of a wave of defaults springing from a single insolvent player, much like the collapse of a large bank in the US in 2008 could spread a contagion of insolvency as borrowed assets get written down. Now, the French and German banks which have loaned money to Greece have had several years to immunize their balance sheets against a potential Greek debt default. Furthermore, other countries at-risk in 2011 (Portugal, Italy) have successfully convinced the market that they are committed to the European union and settling their debts. In other words, the new Greek government just doesn’t have a lot of leverage, despite what they’ve promised. The economic powerhouses of Europe may offer some relief, like extending the duration of payments, to placate the new government. However, France and Germany have few reasons to reward poor behavior and unrealistic expectations from spendthrift neighbors. The Greeks do have a choice: they can leave the Euro and default on their debt. Nobody thought that the Greeks were going to enjoy the austerity measures imposed by the Eurozone partners, but the recent election seemed to give the Greek populous the illusion that they had a choice in the terms of the agreement.