Tuesday 1 November 2011

A Vote of (no) Confidence

After a difficult weekend with his Socialist International colleagues at a luxury hotel in Crete, Greek Prime Minister George Papandreou stunned the nation on Monday with two decisions: to hold a vote of confidence in the government on Friday, and to seek a national referendum on the implementation of the austerity programme, possibly by January.

Both decisions are likely to backfire massively, unfortunately in the same way that equivalent decisions have backfired since October 2009.

Taking the referendum first: under normal circumstances, a referendum may indeed be a powerful way of seeking a national consensus on which future direction Greece should follow. But these are not normal circumstances:

·     Greece is in its third year of recession. Formal unemployment has reached 16.5%; real unemployment is far higher. Hundreds of thousands of companies are closing; non-performing loans are estimated at between 20-30% of total loan portfolios in Greece.

·      High tax increases and salary cuts are leading many families to destitution. Hundreds of thousands of people are no longer able to service their mortgages and provide for food and running costs. In my late grandmother’s apartment block, for instance, most residents are retirees dependent on a state pension. After pension cuts, they do not have enough money to purchase heating oil to heat their apartments. PASOK’s socialism has produced quite a choice: freeze or eat.  

·       The international financial sector has voluntarily agreed to a EUR 100 billion write-down in Greek sovereign debt; sovereign creditors have just agreed to a second massive loan for Greece. There was no mention of a referendum at all last week: the Greek Prime Minister has pulled the rug out from under the very partners who have put everything on the line for him.

After the October 28th anniversary, many Greeks now equate the austerity plan with a second Nazi occupation. Comments made over the weekend, that Greece was in “another war”, or “facing another occupation”, set the tone. This is irrelevant to the fact that Greece itself incurred its massive debts, and that absent a primary surplus, the only thing keeping the limited public sector turning over is further loan disbursements from the Troika.

A sense of delirium appears to have affected the country, or at least that part of the country one sees on TV reportages, or that part which I spoke to over the weekend in Crete. As a result, it is impossible to believe that anyone would vote “yes” in a referendum requiring the implementation of austerity were it to be asked in the next few days.

Yet the same issues affect PASOK and the proposal for a no confidence vote. PASOK MPs are fed up of having to vote for measures they don’t support. Immediately after the Prime Minister’s proposal, the Athens News Agency reported that six PASOK MPs asked the Prime Minister to resign, while one MP declared herself independent. The government majority has fallen to 152 seats in Parliament.

Unlike Monty Python, I see no evidence that the Prime Minister has “a cunning plan” in this declaration. In fact, I believe it is a massive political miscalculation, equivalent to his handling of the onset of the debt crisis in October – December 2009.

Above all, I see a massive lack of credibility between Greece and its international counterparts. After all the political damage incurred by the ruling coalitions in Germany, The Netherland, France and other countries to enforce a 50% private sector haircut and extend yet another sovereign loan, the Greek Prime Minister’s actions prove that either he doesn't respect them, or he doesn’t understand the political temperature of the country. Or perhaps both.

As a result, I believe one of two scenarios will manifest themselves:

a.     The government will shelve the idea of the referendum, and will be weakened internally even if it wins the vote of confidence. This will further detract from its ability to implement the austerity plan. Instead, it may call national elections.

b.     The government will lose both the referendum and/or the vote of no confidence. The result again is elections.

A third option is a government of national unity, but this choice is probably impossible.

In an election, I forecast gridlocked first round, and a second round in which New Democracy makes an alliance with moderate left-wing and centrist parties (and perhaps LAOS), under the promise of re-negotiating the austerity plan. It will not be able to do this, but in fact will blame the previous government for Greece’s position, and begin implementing the plan. The largely left-wing bureaucracy, already passively resisting PASOK’s rule, will begin actively resisting ND’s, leading to large-violence and political paralysis. We have already seen this movie before in Greece.

Above all, I believe that any European solidarity for Greece must be now over. If I were Angela Merkel or Nikolas Sarkozy, the events of the past 24 hours would make me reconsider political relations with an unreliable and intransigent partner. Our Eurozone sovereign partners can far more easily freeze Greek membership in the European Union and simply recapitalise their own banks, than continue to engage in the parody of solidarity with this country.

The next 12-18 hours will be decisive, while uncertainty and volatility have just increased dramatically. And no matter what the outcome, the damage to Greece’s credibility are massive, while the chances of implementing its austerity and reform programme are diminished.

© Philip Ammerman, 2011 

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