Greece's exit from euro zone not a foregone conclusion

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More and more leading voices are telling Greeks that they can't have their crust of bread and eat it too.

It is becoming accepted wisdom that if anti-austerity forces manage to forge some sort of governing coalition after the next Greek election June 17, Athens will immediately break its vows to make deep budget cuts and key reforms in exchange for the bailout cash to pay its bills and meet its debt obligations. A messy bond default and even messier exit from the euro zone would inevitably follow, leaving Greece busted and other troubled euro-zone countries in serious jeopardy. The very survival of the single currency would be in doubt.

European policy makers are already preparing the ground for a Greek departure, insisting that the continent's financial safety net is now strong enough withstand the fallout. This is questionable. But it is by no means a foregone conclusion that the Greeks will leave the euro zone – at least not yet.

Polls have shown that a majority of Greeks would prefer to keep the euro. And while the nation's voters are certainly demanding relief from painful job, pension and salary cuts that have plunged the country into deep recession and sent the unemployment rate north of 20 per cent, they still trust European institutions more than their own. The first post-election survey showed that a remarkable 70 per cent want to stay in the euro club.

The leading anti-austerity party, a radical leftist coalition known as Syriza, came a surprising second with just under 17 per cent of the vote in the election that resolved nothing on May 6. The latest polls now put its popularity at 24 per cent. But that may well be its peak.

The conservative New Democracy group, one of the two mainstream parties, along with socialist Pasok, that took a pummelling over their backing of the austerity-for-euros deal, is leading with just over 26 per cent support. Given that the front-runner in the election gets an additional 50 seats in parliament under Greek rules, New Democracy may well be able to cobble together a majority by combining with Pasok, which came a distant third in the last go-round.

Greek voters were eager to send a message in the last election, briefly boosting the fortunes of fringe politicians. But the turnout was historically low.

This time, the Greeks face what amounts to a referendum on the euro. Syriza is trying to woo them by promising to ditch austerity but stay in the euro zone – an impossible combination, as European policy makers have made clear. The G-8 leaders waded in on Sunday. "We agree on the importance of a strong and cohesive Eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the Eurozone while respecting its commitments." European leaders will say much the same thing at yet another summit meeting Wednesday.

"Syriza and other anti-bailout parties believe that they can abrogate the terms of the bailout without facing significant consequences," BCA Geopolitical Strategy says in a report. "These Greek politicians, however, underestimate the amount of political capital that German Chancellor Angela Merkel and her fellow core European leaders have expended on Greece. Were Greece to brazenly ignore the terms of its bailout, Merkel would have to answer questions from her voters about why their taxes have, for two years now, been cast into a Greek black hole."

But despite the we-won't-budge rhetoric from Ms. Merkel and various EU officials, the bailout providers will undoubtedly be willing to make minor concessions. And whatever coalition government emerges from the political fog in Athens will be in no position to reject the terms, unless it can find another way to pay public-sector workers, keep the lights on and the pension cheques flowing, and tell official European creditors and lenders holding some €500-billion of Greek IOUs to take a hike.