Greek Politics: A Step Towards the Exit

All eyes were on France going into the weekend of May 6th, but it turns out the Greek elections have much bigger potential implications for the future of the eurozone (EZ). Last Sunday marked a seismic shift in Greek politics, in which the two main political parties—New Democracy (ND) and Pasok—together failed to win an absolute majority for the first time since the collapse of the military dictatorship in the 1970’s. The path forward for Greece is unclear, but even the best possible scenario doesn’t look good.

Leading up to the May 6th general election in Greece, opinion polls indicated that ND and Pasok had lost support to fringe parties on the right and particularly on the left of the political spectrum. Many analysts argued that voters were expressing anger with the two main parties by saying they would support opposition movements in opinion polls, but that when it came to voting day they would cast a ballot for the same two main parties as usual.

This wasn’t the case. New Democracy came in first place with only 18.9% of the vote, followed by Syriza (16.8%) and Pasok (13.2%). A record 34.9% of voters abstained, a particularly high figure for a country in which voting is technically compulsory (though according to 2001 legislation there are no sanctions for failing to vote).

No government this time
The leader of ND, Antonis Samaras, has already given up trying to form a coalition government. Now the head of Syriza— Alexis Tsipras—has three days total to try to form a coalition. If he fails, then the head of Pasok—Evangelos Venizelos—will have a turn. It is extremely unlikely that any of these parties will manage to form a coalition given the divisions between the parties that surpassed the 3% threshold to enter into parliament.

Going into the election, the main parties in Greece were split according to their position on the EU/IMF bailout. ND and Pasok represent the pro-bailout parties, though ND would like to renegotiate some aspects of the troika bailout package. The communist party (KKE) is the only party that is overtly against both the bailout and Greece’s membership of the EZ. The other parties can be roughly grouped into an anti-bailout but pro-EZ membership category, though there are clearly huge differences between these parties. Democratic Left and Democratic Alliance are slightly more moderate anti-bailout parties.

ND and Pasok have no potential coalition partners following the elections on Sunday given their pro-bailout stance. As one of the more moderate anti-bailout parties, Democratic Left seemed one potential candidate, but Democratic Left leader—Fotis Kouvelis—has made it clear that he will not cooperate with ND or Pasok. Of the other parties that made it into parliament, none is likely to cooperate with ND or Pasok: Independent Greeks (10.6% support) are a splinter party from ND, KKE (8.5%) refuses to cooperate with anyone in government and Golden Dawn (7%) is an extreme right-wing party that no other Greek parties would pair up with barring severe social upheaval.

The options for Syriza forming a coalition government don’t look great either. ND and Pasok would not participate with an anti-bailout party, which means Syriza’s only realistic option is forming a left-wing coalition. However, the KKE refuses to cooperate with any other parties, and consequently a Syriza-led left-wing coalition would fall short of an absolute majority.

New elections extremely likely
Once all the main parties have failed to form a coalition, the President of Greece tries to try to broker a deal. In the very likely event that he too fails to broker a deal on a coalition, a caretaker government is put into place and new elections are held within four weeks. Given that Greece has its first IMF review for its second bailout package beginning in June, the country has no time to waste in getting a government in place. Most analysts therefore expect new elections to be held on June 17th.

Are new elections likely to yield results any different to those in the first elections? It is extremely difficult to say given the dramatic political transformation in Greece last Sunday. It is possible that Syriza will be emboldened by its performance in the first elections and will continue to push its anti-bailout platform, picking up even more support in the second elections.

On the other hand, Greeks may decide instead to vote for the devil they know and cast their ballots for ND and Pasok. ND in particular has been outspoken in criticizing Syriza, rightly claiming that a rejection of the bailout could well result in Greece’s exit from the EZ. Voters in Greece are overwhelmingly still in favour of EZ membership, and consequently may come flocking back to the two traditional parties. Furthermore, ND and Pasok are nationwide party machines. With abstention rates at record highs, they may succeed in mobilizing voters in a second election.

Political instability the only certainty
There are a number of different paths forward for Greece politically, but even the best option does not look very promising. Assuming that the troika will not accept a wholesale scrapping of the bailout agreement, the only option forward for Greece that does not involve an imminent default involves a coalition government comprising pro-bailout parties.

This could be possible if ND and Pasok hold on to (or even increase) their support base from the first election and form a coalition with a group of small, liberal, pro-business parties. Drasi, the Democratic Alliance and Creativity Again together gained 6.6% of the vote in the first election—enough to enter parliament—and are in talks to run together in the second ballot.

Even if a pro-bailout coalition comes into power, it would face extremely hostile opposition from the other parties and would be unlikely to have success in hitting bailout targets or implementing structural reforms where previous governments have failed. What’s more, ND and Pasok are not natural bedfellows and could be consumed by infighting as they have frequently been in the current coalition. A pro-bailout coalition could therefore provide a solution that might last for months, not years.

The hope would be that in the meantime, a pro-bailout government could negotiate sufficient concessions from the troika to get broad-based support from the anti-bailout parties in Greece. This could pave the way for a unity coalition once the pro-bailout coalition has collapsed.

What are the chances of this working out? I wouldn’t hold my breath. We have witnessed ND and Pasok’s unsuccessful attempts to gain concessions from the troika in bailout negotiations several times already. I have repeatedly argued that Greece and the troika will choose to part ways in an amicable divorce as early as next year. The current political situation in Greece means that the divorce may come much sooner, and the split could get very ugly.

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28 Responses to Greek Politics: A Step Towards the Exit

  1. Congratulations! Very good indeed! You are right :the divorce will not take longer, and will not be beautiful at all. Others will follow…….

  2. i like the fear that is spread by the media… unfortunately for most of you who want to maintain the status quo of the bipartisanship system, the majority of greeks like the fear too… the more they see, the more easily they will divert from the status quo. so please continue

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  4. A says:

    To George:

    If you did pay attention, there is no bipartisan system anymore. Sadly there are no mature party leaders as well.

    Everybody wants be in opposition.. It is much easier there. No difficult choices, just saying No all the time and leading society to extreme parties..

    Suspect that you dont know what leaving the euro means and how it will damage not one generation but many generations in Greece.

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  6. drderrick says:

    They’ll be back on the drachma by the end of the summer. Devalued currency will facilitate slow recovery. Domestic pressure will mount for Spain, Portugal to do the same. Breakup of Eurozone commences. The alternative is growing political extremism and social unrest. Remember: Europe has a history of war that stretches back more than a thousand years, and has been at peace for only the past 67 years.

  7. BP says:

    This situation is so sad… I have lived in Greece all my life, working in the private sector and enjoying an acceptable standard of living through hard work and on-going self development. I had successes and dissappointments, went unemployed for short spells, but always strived for the best, for me and my family.
    Meanwhile, the norm in the country was easy, safe, public sector jobs paying medium wages for work that was not really necessary, or self employed people opening small shops, selling things nobody really needed. Meanwhile, the self-employed ones avoided paying income taxes.
    Suddenly we all woke up to the reality the country could not sustain the current model. The tragedy is that all of us will pay the bill, except the super-rich who have already moved their savings to foreign banks. And I fully agree with the analysis of the article.
    Thank you for taking the time to read this.

  8. B says:

    “As the cost of the establishment’s austerity deepens, the polarisation between left and right is portrayed in much of the media as the rise of “extremes”. But it’s both absurd and repugnant to equate racist or xenophobic nationalists, which have kept supposedly centrist governments in power from Denmark to Italy, with leftist parties rooted in social movements that stand for a progressive political and economic alternative.” -http://www.guardian.co.uk/commentisfree/2012/may/08/left-revolt-austerity-far-right

    We do not intend to leave the euro or the eurozone. We just rejected austerity. Because it has destoyed not one, but many generations in Greece. But thanks for your concern, A.

    • Megan Greene says:

      The problem is you can’t reject austerity and the bailouts without leaving the EZ unless the troika is willing to back down on its austerity drive. And unfortunately I don’t see that happening in the time frame necessary to weather this political crisis.

      • B says:

        We have consiously and knowingly decided to test the troika’s determination (sooner than later), by deneging our promises of reform. Either we will regain our dignity and a sense of hope for the future, triggering continent-wide reforms, or (to quote Rancid), “if I’m gonna go down I’m gonna take somebody out.” And, from what we gather, many will go down with us. That’s what you get when you suppress too many educated college graduates at the same time.

      • jack says:

        “Austerity has destroyed…not one, but many generations in Greece.”

        That’s the Big Lie.

        Austerity certainly didn’t destroy Greece because very few of the measures were actually implemented.

        But, if it self-delusion and self-deceit bolsters your self-esteem, so be it.

      • Megan Greene says:

        I would argue that your assertion that very few of the austerity measures were actually implemented is untrue. It is undeniably the case that the Greek government has had a terrible record in implementing structural reforms. But the fiscal adjustment that Greece has made through austerity measures since the start of the crisis has been dramatic and draconian. Greeks have seen their wages and pensions fall around 30-40% over the past three years.

      • Bruno de Landevoisin says:

        Austerity is certainly required, but there exist one central problematic issue. Why is it solely being required of the common man whom was the party least responsible for the economic mess we find ourselves in? After all, along with leadership comes responsibility, and the Int’l financiers & local politicians directly involved, have showed neither leadership nor responsibility throughout this debacle, and are mostly to blame for the distress we find ourselves in.

        Where is their austerity???? If you want austerity, the sacrifice needs to start at the top, especially when you expect the ones least responsible to sacrifice as well. Until a more equitable balanced approach is taken, you can kiss austerity imposed by those most culpable good by……

        I would rather tare the whole system down, before letting the crooks off the hook!

      • Mike Alex says:

        Reading …“if I’m gonna go down I’m gonna take somebody out.”, …sounds threatening.
        To me this equates to: ‘Help maintain the Greek status quo or else.’
        Clearly, the Greek status quo does not work, because if it did Greece would not be in this fiscal situation.
        Is continuously paying for the Greek-way of doing things a sustainable option for the rest of Europe? Hmm, with the best will in the world, not really.
        I hope there will be sufficient polarisation running up to the next Greek election so as to offer the Greek people something simple to vote for:
        Option 1. Stay in the EU, practice austerity and other much-needed reformation or
        Option 2. Tear up austerity, come out €400 Billion up, leave the EU and figure the rest out.
        Option 3. Abstain from voting and play the blame-game.
        I suspect some of the electorate and politicians typically may want parts of first option together with parts of the second option. Hmmm…if you were the ECB would you permit such undermining?
        For the first time, Greece will vote on how it will tackle its predicament. The man in the street is responsible for the outcome and whatever the outcome, he deserves it, not so?
        Personally, I hope Greece stays within the EU and rises to the challenge, as they so proudly have through history! Times, they are a-changing, get real, get sustainable and quit poker.

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  18. James, London says:

    Bruno, If you are waiting for the elites to take responsibility you will be waiting a very long time.
    It has been and will continue to be the average Greek who will pay for the mistakes of their leaders. I’m a great believer in the phrase ‘people get the leaders they deserve’ but in the case of the Hellenic Republic I believe this has now gone too far. The average Greek has already paid enough, in terms of the standard of living being reversed by 10/15 years. They can’t take and shouldn’t have to take any more. If the Troika want more austerity it will be akin to the reparations forced on Germany after Versailles. As we have already seen extremists will take full advantage, ironically the EU will be helping the foe it was established to keep at bay.

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  20. Capitalism has done its job in alienating the workers from the fruits of our labour and there is nothing left for us to give without enslaving ourselves to the corporate machine…there’s no more money, no more energy and no more motivation. The music just stopped in Greece first.

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  22. …the weekend is coming up and it’s Showtime folks! In an earlier post I expressed a wish for sufficient polarisation; seems this wish might yet be fulfilled. There also appears not much wriggle-room left and nowhere left to hide or escape to from a simple choice. A comprehensive majority and definitive stand in either camp would be a very fine result.
    Courage, Strength, Honour, Consequence and Humility, indeed lofty human ideals, however without substance, if not practiced. Amen.

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