As Greece Nears Historic Election, Europe Watches Warily

Debt-laden Greece prepares for the second-round of a crucial national election this weekend that all of Europe will be watching closely.

At stake is nothing less than Greece’s financial survival and the viability of the euro zone currency bloc.

The European Union, led by German Chancellor Angela Merkel, has demanded that Athens impose draconian austerity cuts in exchange for a total of €240 billion ($303 bilion) in bailout money. Terms of the bailouts have led to massive job cuts, pension and wage freezes, and severe reductions in social spending.

Outraged and frustrated Greeks lashed out at mainstream parties during the first round of the poll by giving the radical left (anti-austerity) Syriza party a surprisingly strong showing and hammering the pro-bailout Socialist Pasok party. Syriza finished second to the center-right New Democracy party (which generally supports austerity, but with some reservations).

While official opinion polls are prohibited in Greece two weeks prior to the election, Syriza and New Democracy party are likely to once again gain the most votes.

However, a repeat of the first-round, in which no one party received anywhere near a majority of votes, would lead to yet another deadlock and a deepening of the crisis. Indeed, in the May election, New Democracy, Syriza and Pasok only aggregated 49 percent of the total vote, while extreme parties, neo-Nazi Golden Dawn and the Communist KKE party, received up to 16 percent combined.

If Syriza again polls highly, the bailout agreements with the EU will be in grave danger, raising the likelihood that Greece will go bankrupt and exit the euro zone -- a scenario that would push Europe into an unknown financial void.

But even Syriza’s leader, Alexis Tspiras, does not want that to happen -- indeed, he would like to see Greece remain in the euro zone, but only after terms of the bailout agreements have been significantly altered in ways more favorable to Athens.

The memorandum of bankruptcy will belong to the past on Monday [the day after the elections], Tsipras declared during a campaign rally on Thursday. Brussels, expect us, we are coming on Monday to negotiate over people's rights, to cancel the bailout.

Of the seven major political parties running in the election, only Pasok and New Democracy (the coalition partners of the prior government) are in favor of the bailout and austerity programs.

Meanwhile, Germany, the continent’s most powerful economy and the object of much contempt and derision in Greece, has repeatedly insisted that bailout terms cannot be renegotiated and that Athens must continue cutting as much as possible to reduce its huge debt overhang.

Jens Weidmann, the head of Germany’s central bank, the Bundesbank, warned on Friday that the euro zone will not be subject to “blackmail” by any member nation with the threat of financial contagion.

“Who will be elected in Greece is a democratic decision that we all have to accept, Weidmann stated in an interview with the Greek newspaper Kathimerini. But also the newly elected Greek government is bound by existing agreements. If it unilaterally opted out of the [bailout] program, it would mean that in my view the basis for more financial help will no longer be given. Greece would have taken its decision but would also have to bear the consequences. We will all be affected, but my assessment is that Greece will be worse off than everybody else.”