Greek elections: Status quo prevails, but crisis is far from over

The results of the Greek elections are in: New Democracy, the conservative “pro-bailout” party, has come in first and appears to have enough support to form a new government.

New Democracy conservative party supporters wave a Greek flag as a TV screen shows results at an election kiosk at Syntagma square in Athens, June 17, 2012. (Petros Giannakouris - AP) So what does this mean? In the very short term, it likely means Greece won’t be leaving the euro zone. New Democracy’s leader, Antonis Samaras, basically wants to abide by the terms of the country’s bailout agreement with the rest of Europe. Greece will continue to stick with its austerity program — spending cuts, tax hikes, paring back public-sector jobs. And in return, the “troika” (the European Central Bank, the European Commission, the IMF) will keep sending Greece billions of euros to run its day-to-day operations.

But how tenable is this overall situation? Greece continues to struggle through one of the worst depressions in modern history — its economy contracted 7 percent last year and unemployment is at a staggering 21 percent. Many economists have argued that Greece’s austerity program — intended to rein in its staggering debt load — is only hurting growth and making things worse. And, Paul Krugman notes , as long as Greece is tethered to the euro, its economy will remain uncompetitive.

Samaras has said that he would like to tweak the terms of the bailout-for-austerity deal to ease the pain in Greece. On Sunday, German Foreign Minister Guido Westerwelle suggested that the troika would be willing to give Greece a little leniency — perhaps by giving the country more time to repay its debts. Think of this as a small “reward” to Greece for not voting into power Syriza, the left-wing party that had promised to rip up the bailout deal. (Syriza came in second in Sunday’s election and has vowed not to participate in the new government.)

Still, that’s a relatively minor tweak. It remains to be seen whether Europe will offer Greece a deal that allows the country to shore up its economy and get back on the path to recovery. Famed gloomy economist Nouriel Roubini is skeptical this will ever happen, predicting that “in 6-12 months [the New Democracy-led government] will fall as economy will fall into a depression. Then new elections will lead Syriza to win [and] a Grexit will occur.”

In other words, Sunday’s New Democracy win may mean that Greece remains in the euro zone for now. But unless someone can figure out how to put Greece on a more sustainable path — and most of the ideas for sustainability seem to involve “free money from Germany and other rich countries” — then a Greek exit from the euro is still a looming possibility down the road.