Greek Elections: Returning to the Unsustainable Status Quo
New Democracy (ND) just barely pulled ahead of the anti-bailout, left-wing Syriza in the election on June 17th. According to the Greek constitution, the party in first place wins 50 bonus seats in parliament. With roughly 85% of the votes counted and Syriza having conceded defeat, it looks like ND will have 130 seats, Syriza 71, Pasok 33, the Independent Greeks 20, Golden Dawn 18, the Democratic Left 16 and the KKE 12. The markets will view a ND victory as good news, but is it really? I expect the rally to be short, as this election has just returned us to the utterly unsustainable status quo.
ND wins—now what?
The only thing that the leaders of the main parties in Greece can agree on is that Greece needs to form a government, and quickly. This represents a significant shift compared with the May 6th election, when it was clear early on that most parties were more interested in party politics than the national interest (ND spent only six hours trying to form a coalition, and Syriza in particular was intent on pushing the country to new elections).
Once Greek President Karolos Papoulias gives New Democracy the green light to form a government, ND will have three days to attempt to form a coalition. Syriza will insist on remaining in opposition, and who can blame them. Syriza can stand on the sidelines and soak up new supporters with its anti-austerity rhetoric as the new government struggles to comply with the terms of the bailout. This could put Syriza in position to win the next election once this government collapses. Pasok initially said that it would only participate in a coalition with ND if Syriza also joined as a partner. Since then Pasok has softened its rhetoric and indicated that it would prefer a coalition to include Syriza but its priority was to not leave Greece ungoverned. I expect an ND/Pasok coalition to emerge, with the two parties commanding around 163 seats in parliament (151 are needed for a majority). The Democratic Left may also be brought into government to share the burden of implementing the terms of the bailout.
Then the Hard Work Starts
Once a coalition is in place, the really hard work will start. The ND-led government will be immediately visited by troika representatives for a delayed quarterly review. Greece is also supposed to find around €11bn in new savings by June 30th to hit the targets agreed in the second bailout. ND has said that it plans to renegotiate the terms of Greece’s bailout, but it is unlikely there will be a full renegotiation. More likely, Greece’s fiscal targets will be relaxed slightly and some minor measures will be included in the bailout to attempt to boost growth. Even if the terms of the bailout are relaxed somewhat, there is no reason to expect a ND/Pasok government to succeed in implementing the memorandum of understanding in the face of such austerity fatigue.
Greece will therefore remain in its downward austerity/recession spiral. As the government is forced to implement further austerity, social unrest will rise and opposition to additional retrenchment by MPs will cause the government to collapse by the end of this year. Greece has entered a new period characterized by such a cycle of elections, additional austerity, social unrest and new elections. Increasingly squeezed by austerity measures, the Greek electorate will eventually put in place a government willing to consider alternatives to the current path of retrenchment and bailouts and will choose to exit the EZ.
This post originally appeared at Economist Meg and is posted with permission.
5 Responses to “Greek Elections: Returning to the Unsustainable Status Quo”
Greece will just take on more debt with what will end up being prolonged poverty and payments for decades to come. The sad thing is that the markets know this but are running up bids for the short term gains. The debt bubbles keep expanding in bad areas. The coming bursts will be cataclysmic.
Megan, as a Greek American from the ground, I could not agree more with your point of view. The vote came in out of the Greek middle class fear of leaving the Euro. Greeks live in the past and are unwilling to stand on their own two feet, but the Euro dream has turned into a hell and they have no new vision for the future. There is no plan B. No national pride, just complete EU dependence and demoralization. Personally, I fear that this kind of dysfunctional psychology is going to lead to disorderly collapse and worst possible outcome. Apologize for my pessimism.
Above two good comments….both with probably the same outcomes…..Too much pessimism is not applicable in this global fiasco.
Attempting to "solve" the global financial downturn with an extension on the same old basis of more debt in a "debt oriented" system is not solving anything at all…..just extending the pain that is to come to "de-leverage" the system….which is sorely needed.
Problem is that the whole system is predicated on more value for corporate shareholders on short term basis just like ordinary folk need "short term" money to survive.
Once we "globalized" we opened all doors for any "local" problems to spread, globally. It doesn't take a genius to figure that out. And, it's far too late to put the genie back in the bottle.
There are no good choices. Too much "austerity" and you might have revolts, or worse, civil wars.
No "austerity" and you will not "solve" the crisis.
But, austerity for whom?
That is the giant political question that has not been answered yet, anywhere in this world in an attempt to "solve" the global financial crisis.
So, too much pessimism is really applicable here. We need more.
Just for the record, the 50 seats bonus is provided by the elections law and not the constitution.
In my opinion, any austerity plan in these extreme conditions, must include a "safety net" to rescue the increased number of poor. Where is such a safety net in the Greek or Spanish plan?