Possibility of a Greek exit from the Euro increases daily

With the failure of Greek political parties to form a government, new elections will be held on June 17th.  According to current polls, the party likely to come out on top (although without a majority) is the leftist Syriza party, which is against fiscal austerity measures that would ensure the ongoing bailout.  Analysts have varying takes on what might happen if/when a Greek exit (aka "Grexit") occurs:

From the Economist: http://www.economist.com/node/21555567

The FT reports on the new caretaker government and the upcoming elections: http://www.ft.com/intl/cms/s/0/e18e27e6-a012-11e1-90f3-00144feabdc0.html#axzz1v8ps1Oj3

The UK Guardian's front page ran a headline stating that a Greek exit would cost over a trillion dollars: http://www.guardian.co.uk/global/2012/may/16/cost-greek-exit-euro-emerges

CNN contemplates the possibility of a Greek exit: http://edition.cnn.com/2012/05/17/business/greece-euro-exit/index.html?hpt=ieu_t2 and also reports on multinational companies making preparations, while politicians avoid the topic: http://edition.cnn.com/2012/05/16/world/europe/europe-grexit-planning/index.html?hpt=ieu_c2

Storm clouds on the horizon...

France's new president, Francois Hollande will be sworn in on Tuesday, and will be entering office during one of the most perilous times for the Eurozone.  http://www.eubusiness.com/news-eu/france-vote.ggu

A perspective on the upcoming meeting between Hollande and Merkel on Tuesday from the UK Guardian: http://www.guardian.co.uk/business/2012/may/13/eu-leaders-showdown-eurozone-crisis
Greece has been unable to form a government, and is likely heading for new elections, putting in doubt the government's ability to implement new austerity measures required for their bailout. http://news.yahoo.com/greek-efforts-coalition-flounder-131813794--finance.html

Economist Paul Krugman sees few options for the Eurozone - http://krugman.blogs.nytimes.com/2012/05/13/eurodammerung-2/?smid=tw-NytimesKrugman&seid=auto

But economist Barry Eichengreen sees difficulties for countries that want to leave the Euro, comparing the current situation in Europe to the historical situation with the gold standard he states, "Yet I am reluctant to believe that things will turn out the same way this time. Four differences lead me to believe that maybe – just maybe – the euro will survive.": http://www.project-syndicate.org/commentary/is-europe-on-a-cross-of-gold-

The bleak outlook in the media is punctuated by protests, like those this weekend in Spain:
http://edition.cnn.com/2012/05/12/world/europe/spain-protests/index.html?hpt=ieu_c1

...and the dominoes continue to fall in Germany: http://www.nytimes.com/2012/05/14/world/europe/in-rebuke-to-merkel-social-democrats-win-german-vote.html?hp

Why attention needs to be paid to French legislative elections in June

The outcome of the French presidential election this past weekend was not a surprise, although Sarkozy did indeed close in on Hollande at the end, but it was not enough to give him a second mandate.  There have been many analyses of the election and what it means, but little attention has been paid thus far to the upcoming French legislative elections in June.  Although the French Assembly has little power compared to the President, the June legislative election is critical for Hollande's ability to govern.  He will need a majority of leftists in the Assembly, otherwise, if the right can manage a majority, he will be faced with a divided government, and "cohabitation" as happened under Mitterrand and Chirac, who had to work with Prime ministers and majorities from the opposition.  As Jim Bitterman notes in a CNN report, Sarkozy set to work on Monday to strategize on getting a legislative majority for the right. (http://globalpublicsquare.blogs.cnn.com/2012/05/07/after-the-french-election-will-divisions-remain/)

Bitterman also notes that there were 2 million blank ballots cast, while Sarkozy lost by 1.2 million votes.  This fact will be critical to the right's calculations as they look forward to the legislative elections.  Marine Le Pen may hold the key -- as I have written in my book on the Radical Right (Voting Radical Right in Western Europe) parties in France tend to use the first round of the two-round legislative election as a sort of primary.  The top candidates from the left and right will move forward, and candidates who come in behind them will usually agree to drop out, in order to give the top candidates a better chance of winning.  In past elections, the mainstream right has said that they would not cooperate with candidates from the National Front, which cost them seats.  It is yet to be determined what will happen in the upcoming election, now that Marine Le Pen has shown that she controls a large number of votes, which is concentrated in particular departments (see electoral map http://media.rtl.fr/online/image/2012/0423/7747131778_2012-les-cartes-du-premier-tour-le-vote-le-pen.jpg).  If the mainstream right agrees to coordinate with the National Front, it could mean that they could win several seats, potentially impacting Hollande's ability to get a majority. As has oft been said during this economic (and now political) crisis in Europe - chaos could ensue.

More Analysis:
From Steven Erlanger of the NY Times - on the same track as my comments above: http://www.nytimes.com/2012/05/08/world/europe/sarkozys-party-assesses-2-paths-after-loss.html?_r=1&pagewanted=all

http://globalspin.blogs.time.com/2012/05/07/after-winning-the-french-presidency-what-will-francois-hollande-do-next/

http://www.businessweek.com/news/2012-05-06/hollande-defeats-sarkozy-in-shift-of-power-to-french-socialists