Greece and the EU: Harmony or Truce?
The recent rerun in Greece gave the EU a sense of certainty Europe had lacked for quite some time. Considering that the frontrunner in Greece automatically gets extra 50 seats in the 300-seat legislature as a bonus, the votes garnered by New Democracy – around 30% – combined with the 12% won by the socialist PASOK, which polled third in the election, should be enough to form a ruling coalition capable of peacefully coexisting with Brussels. As a result, it is clear that the departure of Greece from the Eurozone, which seemed imminent a week ago, is not among the scenarios for the nearest future. Nevertheless, the current state can be described as a truce rather than as regained harmony, and the tendency of EU fragmentation along geographic lines or into distinct groups of heavyweights on the one side and their smaller peers on the other will surely persist.
Greece’s Kathimerini credited the elections with creating a basis for a stable ruling coalition in the country, and Eleftheros Typos wrote that the outcome of the race to the parliament instilled fresh hopes. The score of the leftist Syriza whose program was built around the pledge to subject to a complete revision the relations between Athens and Brussels was 27%, and, being the highest on record, it still would not enable the radical group to form the cabinet. Hong Kong’s Hang Seng, Japan’s Nikkei 225, China’s Shanghai Composite, and South East Asia’s composite MSCI Asia Pacific convincingly rebounded in the wake of the triumph of the moderates in Greece.
“The two pro-austerity groups getting a majority together in the parliament is a very good outcome. It’s the best-case scenario for the election, prompting traders to cover short positions in the euro,” explained Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-largest banking group by market value, in the habitual terms of his profession. “The result in the Greek election is certainly better than the alternative,” synchronously opined Ric Spooner, a chief market analyst at CMC Markets in Sydney.
Council of Europe chairman Hermann Van Rompuy and European Commission president José Manuel Durão Barroso stressed in a joint statement that they would “stand by” Greece’s membership in the Euro and the EU. Emboldened New Democracy leader Antonis Samaras contributed to the optimistic chorus by saying that “The country does not have a minute to lose.”
Just days before the ballot, the withdrawal of Greece from the Eurozone looked like a foregone decision and the country seemed to be headed for a messy default. Reuters reported amidst the situation that a mock job add on a building wall in Pláka, a historical neighborhood in Athens, read “Wanted. Dead or Alive. Greek prime minister. No qualifications or brains required”. Indeed, the programs Greek political parties attempted to sell on the eve of the election offered little in the way of in-depth analysis or innovation. The divisive issue was how Athens should handle the deal with the EU which made it possible for Greece to nab a Euro 130b bailout and to count on more, but at the cost of implementing a package of crippling austerity measures. In fact, even at the moment neither pro-EU New Democracy nor the left radicals from Syriza are under the illusion that the credit deal, known as the Memorandum in Greece, has serious chances to be put into practice in its current form. The differences between the positions held by the right and the left amounted to details, but the details were Brussels’ major headache. Charismatic leader Alexis Tsipras was open about his view that the agreement with the EU was “a matter of the past”, pledged that his government, if formed, would turn the page on the Memorandum, and charged in an interview to Antenna that lack of concessions on the part of the EU would be indicative of Brussels’ intention to destroy Greece and to exterminate the Greeks.
Tsipras’s rival in the competition over the post of the Greek premier, Samaras, ridiculed the Syriza program as “a comics book” but also made it clear that he would try to negotiate softer terms for Greece from the EU lenders and the IMF. Anyhow, Samaras asserts that during the recent rerun the Greeks voted for staying in the Eurozone.
As of today, international lenders have full freedom to decide how to rearrange the Greek economy and under what conditions to keep Greece in the Eurozone. Several weeks ahead of the elections, the IMF chose to distance itself from whatever was happening in the country – the fund’s deputy director of external affairs David Hawley simply said: “We look forward to being in contact with the new government when it has been formed”. As for the EU, one gets an impression that a rift over the problem of Greece is widening within the alliance. The key issue is the cost: European Central Bank president Mario Draghi expressed his personal support for the membership of Greece in the Eurozone, but not regardless of the price tag. Berlin and Paris promptly sent similar signals. German finance minister Wolfgang Schäuble told Stern that whatever government pops up in Greece it would not change the situation in the country which endures a painful crisis generated by decades of economic mismanagement. French president François Hollande urged Greece to abide by its obligations but gently added that though some EU countries would be happy to put an end to the presence of Greece in the Eurozone, he would like it to stay.
It transpired during the last elections that the Greek constituency had largely outlived the emotional reaction due to which the traditional favorites – New Democracy and PASOK – performed miserably in the May 6 poll, meaning that a moderate coalition finally became a realistic plan. Greece, however, faces a permanent destabilization threat, and the EU must choose between shouldering the costs of debt cancellation for the country or letting it drop out, with the living standards of its population plummeting and a myriad of other problems arising. It depends on the ability of the Greek political class to reach compromise as well as on the atmosphere across the EU what the future holds. Importantly in the context, elections are due in 2013 in Germany, the European economic powerhouse, and a considerable faction among its politicians are skeptical about endlessly draining the German budget to help Greece.
Given the current disposition within the country, Athens has a period of time to resolve its disputes with Brussels. The upcoming EU summit is scheduled for June 28-29, and no significant decisions concerning Greece can be expected ahead of the date. When the summit convenes, the crisis in Greece will be seen as an episode in the unraveling of a wider domino effect into which Spain and Italy are drawn to almost the same extent. By then, Athens should be able to assemble a viable governing coalition which the EU can tolerate (the Democratic Left are ready to blend in along with New Democracy and PASOK), new financial infusions will follow, and the credit terms will likely become available with fewer strings attached. German diplomacy chief Guido Westerwelle dropped a hint that Greece can expect the above when he said on the elections day that new talks on the timetable for the country’s compliance with its obligations in the framework of the credit deal were not beyond imagination. The political games, though, are no cure for the socioeconomic ills of Greece which recorded recession for five consecutive years and where unemployment measures 20% (50% among the young), and will not in the long run stabilize the economic and political machinery of the EU.
Tsipras says Syriza will play an active role in Greek politics as the main opposition party and presses the message that the drastic austerity policies and the privatization campaign must not roll on, since the nation denies legitimacy to the approach. He interprets the election scores as a reflection of the nation’s will to tear up the agreement with the lenders. Consequently, the increasingly influential Syriza will continue to be a huge problem for the Brussels bureaucracy and the architects of the new world order. Economist and Nobel Prize winner Nouriel Roubini projects that the new government in Greece will remain afloat for a year or less and that upon its collapse the country will fall out of the Eurozone. If that is right, the domino effect affecting the European geopolitics is going to spill to an ever growing number of countries.