David Rosenberg: Time Running Out for Europe to End Crisis

Thursday, 14 Jun 2012 09:25 AM

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The window of opportunity for Europe to end its debt crisis is closing quickly, says David Rosenberg, chief economist at Gluskin Sheff and Associates.

Greece goes to the polls on Sunday to elect a new parliament, and a strong showing by the leftwing Syriza political party, which has threatened to renege on bailout terms in the past, could lead to a coalition government rejecting belt-tightening measures such as public-sector layoffs and spending cuts.

Rejecting austerity measures could lead to an end to bailout funding and open the door to a Greek exit from the currency zone.

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Even if Greece does stay, the currency zone needs to merge into a more cohesive fiscal unit instead of a monetary one.

Eurozone countries use one currency but up to now, they run their own fiscal affairs.

"There is no history of an economic union surviving without a political and fiscal union and the problem in the eurozone is that if you want to go through that route you have to pass legislation in all these different countries. It's very complicated and time is running out. To embark on this path will probably take years," Rosenberg tells CNBC.

Even a victory among the right-of-center New Democracy party in Greece doesn't mean the eurozone is saved.

"It is not clear we’ll get a resolution, whatever party wins we don’t know what sort of coalition they will put into place and it will be very fragile in any case," Rosenberg says.

"Let’s assume the right wing prevails and they live through the bailout terms; the reality is that the economy is still imploding and they will require even more bailouts in the future."

Greeks went to the polls in May but Syriza politicians blocked lawmakers from creating a coalition government over opposition to austerity, which critics say cuts into growth, exacerbates recession and does more harm than good.

New Democracy leader Antonis Samaras has said that a Syriza victory would isolate Greece and decimate the economy.

"If we cancel the bailout plan we will turn into the black sheep of Europe," Samaras said, according to Reuters.

"This would suit some countries in the European Union who want to make an example of us to scare the others."

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