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 Greek law, 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.

About these ads

10 Responses to Greek Elections: Returning to the Unsustainable Status Quo

  1. B says:

    Corrections:
    “According to the Greek constitution, the party in first place wins 50 bonus seats in parliament”. Not according to the constitution, just a recent (ND) law.

    “ND spent only six hours trying to form a coalition, and Syriza in particular was intent on pushing the country to new elections”. ND,PASOK & DemLeft had enough MPs to form gvt. Chose not to. Syriza needed many more MPs than those willing to form 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.” Unfair. Syriza seeks to renegotiate terms, using the leverage of moratorium. Name other parties willing to accept this stance before saying that “opposition” is their priority.

    Question:
    Why did you previously suggest that Greece had better choose a pro-bailout gvt (your tweets) when you predict now that grexit is inevitable eitherway, and this 6-month delay will only make living conditions for greeks worse, and of course grexit conditions even more painful?
    I’m not an economist and I may miss angles in your thinking process, but right now I can only see inconsistency in it.

    • Megan Greene says:

      Thanks for your comment. On the first point, I stand corrected and will amend the post accordingly. Appreciate it.

      On your last point, you’re missing a key point: choreography is everything as far as a Greek exit is concerned. Tsipras is an inexperienced, renegade politician (for which many love him, I know) and the chances of him unilaterally pushing Greece into a default–and therefore EZ exit given that Greece is running a primary deficit that is probably growing at the moment–are much higher than they are for Samaras doing so. A disorderly default and exit right now would be the worst possible scenario for Greece. In my view, a Greek exit is inevitable. But much better to wait until early 2013 and do it as part of an orderly, negotiated process with the troika when both sides are ready to call time.

      • danallen2 says:

        Much better for whom? Greece should have defaulted 3 years ago in the dark of night.

      • Meg: Tsipras is really just the alter ego of PASOK and ND. They both believe in the same thing: total EU dependence because they are weened political on EU transfer money for political patronage. Tsipras is virtually a PASOK test tube baby, reminds me of something out of Kubrick’s Clockwork Orange.

        You make an excellent point about choreography. Sad that choreography is an word from ancient Greek for which the modern day Greek political elite are totally ignorant. They are a corrupt, cowardly lot who have no plan B for Greece. They just keep repeating failure.

        Latest idiocy is to continue the emergency property tax on the electrical bill even though court ruling prevents them from turning off the power for non-payment and it is bankrupting the Public Power Corporation because 25% of their receivables are now uncollectible and they are short of cash for their operations.

        Guys like Samaras went to Harvard Business school but they cannot understand simple economics, solvency issues, etc. Venizelos certainly cannot read a balance sheet much less understand what cash flow or debt sustainability means.

        This situation reminds me of Dimitris Gounaris insisting to send the Greek army in the depths of Asia to conquer Kemal and leaving a huge front to rot for over a years thereafter until total and disorderly collapse. He refused to resign and held on to power until the end. After disaster he was tried by Greek military court and sent to the firing squad.

        Your fears, Meg, of disorderly economic collapse in Greece are very well founded with the quality of the Greek political elite that rules the country.

  2. B says:

    I agree that Tsipras has more probability of driving Greece to default, given that Samaras (an empty shell of a politician, as is the common knowledge) simply won’t be allowed to do so by the troika etc. More to the point, Greece has already defaulted once last year (it was named PSI), and arguably will do so again, since it is insolvent and that’s what insolvent states should do. Spain should, Ireland should, this is just what unsustainable debts do.
    Defaults and exits are NOT bound together though, I can’t see the connection, Megan.

    The primary deficit is a serious problem which one can only do conjectures about at the moment (you know details?). I (and most of us) “bought” that Syriza seriously thought they could tackle that for a few months, until the EU (inescapably) decided that they better keep Greece in and the EU from disintegrating OR Germany calling it quits and leaving first.

    Either way, I’m convinced that after a greek exit the rest will follow in a matter of weeks. I’d like to know your opinion on this.

    –With respect, Alexandros.

  3. Pingback: Greek election: the unsustainable status quo | Blog | Public Finance International

  4. To state the obvious; there are many fiscal facts, which are a result of both revenue-generating structures and, conveniently and myopically viewed, revenue-degenerating structures that have been in place for years. No body wishes to do any significant housekeeping; it’s unpopular, difficult, unappreciated, goes against the grain, is considered anti-social and self-rightous and does bear any fruit in the very short-term. So why bother?
    Question: Is there any other healthy alternative to housekeeping?

    Kindly, recall the cost of an espresso in Kolonaki, Athens, which was comparable to very exclusive London prices. Also, recall the very widespread and rapid rise in real-estate prices and the apparently endless and widespread spending and of course the widespread Dolce Vita experience prior to 2008. Clearly, none of it sustainable. Not yet, at least.

    No body outside the country forced such widespread spending sprees, did they? Was a nation somehow encouraged to spend, spend, spend and given a supply of cheap money so that it may get itself into trouble?

    Time and again, concessions with immediate effect are traded for promises of work and reformation to come. This sort of trading is clearly, a case of buy-now-pay-later. Unfortunately, for whatever internal and national reasons, neither promised work nor reformation were fulfilled and so reflects poorly on reputations, which understandably cause trading partners to become wary.

    Whatever national line is chosen to address the dire straits the common man finds himself in, should initially consider addressing those revenue-degenerating structures that have, without doubt, greatly contributed to the nation’s present fiscal situation, as not doing so, very clearly cannot be afforded. In short, don’t believe in the Money Fairy.
    Further, it seems a simple choice remains; carry out the much-needed reformation, go bust or continue to refrain from both and so remain in excruciating limbo with the promise of a golden dawn! I still don’t believe in the Money Fairy.

    The People of Greece voted to effectively stay in the Euro by agreeing to continue with the already negotiated Austerity. Democracy at work, not so?

    Bite the bullet and collectively get on with it, get healthy, get sustainable, excel and until so, leave the Ego at home.
    The alternative is the excruciatingly painful status quo which will persist until the inevitable exit from the Euro, in which case there will be even less assistance forthcoming than now.
    Assistance in one form or another is required, not so, or is there something in the way again?

  5. Jason says:

    The EU cannot continue in it’s current form, break up seems inevitable. Even if Greece can form a functioning government her only chance of economic rescue is to change the terms of the bail out. If the Trokia accept new terms from Greece it will then be forced to renegotiate with Ireland, Spain, and all other failing member states. This will in turn cause yet more uncertainty and panic within the markets.

    The situation the member states now find themselves in is not that different from the various banks whose failing instutitions lie at the heart of the catastrophe. The banks were “rescued” by their respective governments who created money out of nothing, it was simply an illusion, smoke and mirrors, the greatest magic trick ever staged.

    The leaders of the EU are engaged in similar showmanship, only this time it is entire countries which are hidden beneath the magicians cloak. It will require more than the incoherent ramblings of a victorian sideshow to save the EU from financial, political and social disaster.

  6. Pingback: 18th June 2012: Main Greek Parties Haemorrhage Power To the Radical Euro Non-Conformists – Now The Really Painful Part Begins « Market Nightshift

  7. Pingback: Boiling links | Boiling Frogs

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 412 other followers

%d bloggers like this: