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Greece's election buys time – but Europe must act fast

Relieved by the Greek vote, EU leaders have a brief window of opportunity to act, writes Rob Kyprianou.

 
Greece's election buys time – but Europe must act fast

Two days after the Greek national football team dug deep and, against the odds, produced a rousing performance against Russia that prevented them from being ejected from the European Championships, the Greek people followed up and narrowly voted against ‘Drachmaggedon’ – the imminent and disorderly exit of Greece from the euro.

With votes still being counted, support for New Democracy stood at around 30%, and for Syriza (the main anti-bail out party) at around 26.5%. The Socialist PASOK party managed to hang in there, coming third with around 12.5%, followed by the Independent Greeks on around 7.5%, Golden Dawn on around 7%, the Democratic Left (a potential pro- bailout coalition partner) at around 6% and the Communist Party on 4.5 %.

Although the three main pro-bailout parties – New Democracy, PASOK and the Democratic Left - were unable to gain 50% of the vote, the peculiarities of Greece’s ’Reinforced’ Proportional Representation system gives the largest party 50 of the 300 assembly seats. This would give New Democracy around 130 of the seats which would be enough with PASOK to form a majority coalition government.

What next?

The Greek politicians in the early hours after the polls closed were already showing that a pro-bailout, euro-friendly coalition may still require some work. PASOK have suggested that they would like Syriza in a grand coalition and that their participation in a cosy coalition alone with their historic bitter rivals, New Democracy, is not a foregone conclusion. Syriza’s leader for his part has refused to be part of any coalition, preferring to sit back into the much easier role of the leading opposition party. Expect some brinkmanship, rhetoric and mixed signals as the coalition discussions progress today and tomorrow.

Even Samaras, the leader of the ‘victorious’ New Democracy party, has himself already engaged in the game of mixed signals, saying in response to the election result that ‘Greece’s position in Europe will not be put in doubt. Fear will not prevail’. He went on to describe the outcome as ‘a stable foundation for national unity with a European direction’. But, in a clear message to Europe’s political leaders, that negotiations on Greece’s bailout terms should be expected, he also said that ‘the Greek people voted for policies that will create jobs, growth, justice and security’.

Test for 'unholy alliance'

Even if a pro-bailout coalition is formed this week, negotiations on bailout are likely to follow. Such negotiations are likely to test the stability of the ‘unholy alliance’ coalition, as described by Syriza’s leader Tsipras, now that the people’s expectations have been raised since the May 6th election. Greek realities have not changed because of the election – unemployment is at record highs of 22% and rising, the economy has shrunk around 25% during the crisis, the public debt-to-GDP ratio is around 160% and rising, and further severe austerity measure implementations are pending.

Just how tested any ‘pro-bailout’ coalition in Greece will be will largely depend on Europe’s response to the election. The ball is now clearly in Europe’s court – having moved towards the European position by stating clearly that Greeks want to stay in Europe and will not tear up wholesale the bailout terms, will the Europeans move closer towards the position of the bailout countries? Such movement is not just about recognising the importance of growth in any fiscal consolidation programme – this now seems established in principle since Hollande’s victory in France – but also in creating the institutional and political structures that will support sharing financial liabilities and responsibilities.

Pressure on Germany

The shift in noises from Europe since the May elections in France and Greece has been clear. EU, ECB and many national leaders are openly talking of the need for measures to deal collectively with the euro’s woes – and the political pressure for action from outside the Euro zone is also hotting up.

All doors lead to Germany – without their support no progress is possible. The pressure on German chancellor Angela Merkel is intense, not only externally but also from within Germany. Merkel is unable to deliver the necessary votes for the December European fiscal treaty ratification without the support of the opposition parties. The SDP and the Greens are in the pro-growth camp and are aware of their leverage over the treaty vote and will extract a price. Merkel has shown signs of shifting ground, but aware of the resistance within her own party, her endorsement for collective action and responsibility is always qualified and ambiguous.

The next big hurdle

We may not have to wait long for more clarity on how far the euro leaders are prepared to go to save the euro. Monti, Hollande and Merkel are meeting later this week in advance of the EU Summit on June 28th / 29th. No doubt relieved by the Greek vote, EU leaders must now decide if and how to respond to the fundamental fault lines that have been so clearly exposed in the crisis. At an absolute minimum progress must be shown on two key issues:

  1. The recapitalisations of Europe’s banks – the Spanish €100 billion bank bailout is not the end of this debate by a long way. This may require a banking union/ coordinated supervision and insurance scheme which legitimises the concept of shared responsibility by Euro members.
  2. Some form of shared responsibility for euro sovereign debt. The idea that serious sovereign indebtedness within a single currency zone can be addressed solely by local austerity and local responsibility for repayment has been shown to be non-viable socially and politically. But do euro leaders have the political will to respond by accepting some form of shared responsibility, whether by, for example, a European Redemption fund and/or the issue of Eurobonds? It is almost inevitable that any sharing of financial responsibilities will have to be accompanied by agreement to share decision making in some form or other.

'Come and get us'

Whether 17 fragmented political leaders and mandarins in the EU and in the European Central Bank can agree on the nature of this move towards Federalism is open to doubt. But then again, Europe seems only to move in a crisis and this crisis has by no means gone away. What is sure is that without some response, the relief rally that is likely to follow yesterday’s result will be short and brief.

In one of those ‘sport mimicking life’ moments, on election day the captain of the Greek national football team invoked the spirit of Leonidas and his 300 Spartans at Thermopylae and boldly predicted that his team would beat Germany in a penalty shootout in the next round of the European competition. Greece has once again thrown down Leonidas’ famous defiant challenge to the Emperor Xerxes’ demand for surrender: ‘molon lave’ or ‘come and get us’ – this time to Germany and the rest of Europe in sorting out the Euro mess. Like Leonidas, the election may have bought some time to do so, but it will be a narrow window of opportunity. Hopefully, Greece can in the meantime avoid the fate of the brave Spartan king and his men.

10 comments so far. Why not have your say?

jeffian

Jun 18, 2012 at 10:23

I don't understand why there was any 'market relief' at all - even short term - in reaction to the Greek election result. They are still stuck with an uncompetitive exchange rate; they still can't pay their debts; they still collect less than they spend and, unless the Germans agree to guarantee everything, they will simply stagger from bail-out to bail-out. The outcome may have prevented the disintegration of the Euro in the short term, but what's the vision for the long term? A decade of stagnation or an uncontrolled bust-up further down the road? Neither seems that attractive.

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MC

Jun 18, 2012 at 13:09

This crisis has had nothing but time. Time has allowed the Euro leaders to avoid taking decisive action. A Syriza victory would have forced their hand instead, we will have more muddling through and more can kicking.

New Dem will struggle to form a government, even if it does this government is too weak to push through the draconian measures required by merkel.

Greece doesn't need a bailout in the euro sense (new lenders same high levels of debt) it needs a Marshall Plan

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Graham D-C

Jun 18, 2012 at 13:20

Thank goodness we stayed out of the euro.

Even if a pro eurozone Greek coalition government can be signed and sealed, it will have very little room to renegotiate a less tough bailout agreement with Germany, because if anyone else defaults they too will want at least the same deal.

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William Phillips

Jun 18, 2012 at 13:35

Kyprianou is still plaintively calling for a Final Solution to the economic woes of the European landmass: a 'fiscal union' which would be an economic Fourth Reich. Unwittingly his sort ask for the belated realisation of Hitler's dream of a continent dancing to the Teutonic tune, with its corrupt, deracinated multinational stooges in Brussels and Strasbourg repeating, as if in a trance, 'der ist no alternatif if you vant to be rich like us'.

The alternative is for twenty nation states, many with venerable histories and gallant stories of centuries resisting the yoke of oppressive foreign owners, to rediscover, however painfully, the full meaning of independence-- that if it is not founded on your ability to control your economic life, underwritten by a currency that truthfully reflects the state of your finances, it is worthless.

The 'disorderly' and 'messy' collapse of the 'project' of forced EUSSR integration is going to happen anyway. The vile, corrupt nation-killing fantasies of the federasts are going the way of all other imperialisms, from Rome to London, Moscow and Washington.

The future is not One World for the banksters' benefit. It is lots and lots of small, racially cohesive and pragmatically co-operative polities.

If George Soros and the international money traffickers can't handle it, too bad. If all their schemes for enslaving us within the invisible web of transactions spun by Goldman Sachs, Morgan Stanley and the rest depend on selling the peoples of the planet the notion that political unity is strength, then they got the tide of history badly wrong.

The world is fragmenting, the supranational financial conglomerates and conspiracies are suffering, and the cause of plurality and poltical diversity is having a better day than at any time since the Soviet Union (whose revolution was bankrolled by US bankers) fell down.

It wasn't the 'end of history', the irreversible triumph of neoliberal economics, after all. In 1989 a hundred flowers became free to bloom and grow as their own peoples decided: absolute or constitutional monarchies, Islamic republics, secular democracies, ex-communist dictatorships, family and tribal oligarchies, kleptocracies. No Kumbaya coming-together of homo sapiens in forced amity, no confluence of economies into one big playground for well-dressed thieves. Hooray! The more varied this old earth's governance grows, the better. We shall find out which does best, and no faceless creep in a banking parlour or Euro quango will decree our fates.

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jingoistic

Jun 18, 2012 at 15:38

Why oh why are we all cow-towing to Angela Merkel. These bloody Germans are throwing their weight aund because they lost two world wars. Yes go on say I do not know what I am talking about, "TIME WILL TELL".

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Graham D-C

Jun 18, 2012 at 16:01

Its only fair that he who pays the piper calls the tune.

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an elder one

Jun 18, 2012 at 16:12

I don't think it's because they lost in two world wars; it's just in their genes I reckon, and I hope they'll lose a third for everyones good.

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Chris B (Slough UK)

Jun 18, 2012 at 17:11

Going, going, going, going, going ...

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Hotrod

Jun 18, 2012 at 18:46

It seems to me that an affective Govt. could be formed by a coalition of the leftist parties. Unfortunately that is not possible because none of them won, and the winning party gets a head start by fifty seats. A coalition of opposites can never survive for long.

As regards Greece's financial situation: The only lasting solution I can see is default. I.E. bankrupcy and a return to the Drachma. Isn't that what happened when Russia and Iceland refused to pay. Both those economies recovered very quickly and I don't know of any banking institutions losing their fingers in the fire.

As regards Germany: It must be remembered that this country does not actually have any money to bail out Greece. In fact the country is itself is in debt.. The only way the Germans can provide the where-with-all, is to mortgage their childrens future. That is what they have already done twice. Does anyone think that the German electorate will stand for Greece coming back with an outstretched arm and a pityful tale a third time? I think not. If Frau Angie capitulates it will be her last political act.

Finally desperate circumstances require desperate measures. If sufficient political will could be mustered: Confiscation of private assets could be a way forward. My understanding is that there are still many wealthy Greeks who have property and ships that could be seized. Isn't that what happened when President Roosevelt confiscated all privately held gold during the depresson of 1926-32

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an elder one

Jun 18, 2012 at 19:32

Yes, and apparently some such Greeks are owing not inconsiderable taxes.

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