Voters across Europe have punished the promoters of austerity, but analysts say the direction the continental economy will now take is still unclear.
Last week’s elections in Greece divided voters over austerity cuts mandated by eurozone partners. The inconclusive results, and subsequent political bickering, have added to the probability the country will remain deadlocked for weeks.
There is a consensus opinion among economists – and, increasingly, Europe’s politicians – that Greece cannot survive within the single currency.
Al Jazeera spoke to Angus Campbell, who has been working in London’s financial sector since 2001 and is currently head of market analysis at London Capital Group, about the alternatives for Greece, austerity and the future of the eurozone project.
Al Jazeera: With the polarising results in Greece for political parties who have rejected austerity, is this the beginning of the end of austerity measures in Greece?
Angus Campbell: This is not necessarily the end of austerity in Greece, as any new government that is formed will have to either reject the recent bailout deals, and therefore exit the euro, or go ahead with the austerity measures already agreed with the [International Monetary Fund] and European Union. Greece is in the unenviable position where even if it does reject the bailout terms, they will self-inflict austerity upon themselves anyway since they won’t have enough money to sustain their existing levels of government spending. The resultant recession will be deeper than anything they have experienced up to now.
What is the long-term economic outlook for Greece?
The outlook for the Greek economy remains bleak, and until they become more competitive, it’s hard to see any foreign investment going into the country to help their return to growth.
What are the alternatives to austerity, and are they feasible?
There are several alternatives, many of which would not be abided by the paymaster Germany as they would involve further writedowns to their outstanding debt or more effective QE [quantitative easing] in the form of printing money in order to bring the value of the euro down.
If Greece rejects the measures of the bailout and defaults and leaves the euro, what does it mean for the eurozone project?
This doesn’t necessarily mean the end of the eurozone project but it will make it more inconceivable that it could continue to function properly as financial markets would see a vast bout of risk aversion. Investors would likely target the next possible country to suffer the same fate and European countries would spiral into another deep recession on the back of another possible banking crisis.
What is the future of austerity in Europe?
Already we are seeing leaders change their stance somewhat on austerity, which is clearly not working, and so the alternative is boosting growth, which will be the focus going forward. Austerity, to a certain degree, continues to be a necessary evil since government spending has [become] so out of control. A return to growth must go hand in hand with cutting back the state [expenditures] and boosting competitiveness.