Sunday, 13 May 2012

Three Strikes in the Greek Government Formation: One Chance Remains



The struggle to form a Greek government continues. Efforts under PASOK have now ended: the baton is now taken up by President Karolos Papoulias, who is set to begin talks with party leaders on Sunday, extending into Monday.

In the meantime, the split between the Democratic Left (DL) and SYRIZA has widened, with DL’s Fotis Kouvelis accusing Alexis Tsipras of not being serious in his attempts to form a government. This does give rise to hopes that in the next 2 days, a government between New Democracy (ND), PASOK and DL can be formed, with the possible participation of Independent Greeks (IG).

However, this is not a foregone conclusion. Although Fotis Kouvelis has put forward relatively modest terms, it is not certain that all his MPs will support the move. This means that in a coalition government, unless DL party discipline is maintained for what promise to be very difficult expenditure cuts, the coalition government may be short-lived. Kouvelis’ latest statement, that “Mr. Tsipras’ statements after the meeting of three political leaders surpassed every limit of political misery” (Ο κ. Τσίπρας στις δηλώσεις του μετά τη συνάντηση των τριών πολιτικών αρχηγών, ξεπέρασε κάθε όριο πολιτικής αθλιότητας») is indicative of the current climate between the two parties.

In the meantime, new polls give SYRIZA the leading position in case of future elections, with different polls reporting between 20-25% voter support. All other parties are ranked lower compared to their previous voting results. This level of support would undoubtedly allow SYRIZA to form a government, although it would need the support of one more party, probably IG and/or DL, to have a majority in Parliament.

SYRIZA’s economic platform remains undefined, but definitely open to interesting contributions from SYRIZA leaders. Manolis Glezos today suggested that one way for Greece to survive economically was for citizen loans. Citizens making below a certain annual income—EUR 20,000—could volunteer to give a EUR 100/month loan to the government. Citizens making above this amount would be obliged to give the loan. While SYRIZA spokespeople hastened to add that this was a private opinion only, it is a sure sign of the realism, or lack thereof, of SYRIZA’s economic policies.

I give a 55% chance for having a government sworn in within the next 36 hours. This will cause DL and IG to “put up or shut up.” There may also be movement among the Independent Greeks to join a coalition government, although this prospect seems remote.

Failure to do so means elections by June 17th. Should a second round of elections take place, several consequences can be predicted absent a change in creditor policy:

·    There will be large-scale bank deposit withdrawals and an exacerbation of non-collection of taxes between now and then.

·    Greece will probably undergo a second technical default, as it is unlikely that international creditors will continue the bail-out programmes until a stable government is in place. At this point, this doesn’t matter in terms of international refinancing, but we will see a stop in payments to private sector creditors and probably salary or pension payment delays.

·    Upon taking power, SYRIZA will lose another 2-3 months in fruitless negotiations with creditors. By September, however, it is highly likely that a full default of Greece within the Eurozone will take place, together with increasing policy measures described by SYRIZA, including nationalisations, bank account seizures and other interventions.

·    This in turn will prepare the grounds for a Greek exit from the Eurozone, as a SYRIZA failure to comply with the bail-out terms will result in its full isolation in European policy circles. Although I still cannot see how this is legally possible, it will likely be engineered by January 1st 2013. Should a Eurozone exit not take place, Greece will implement a full default within the Eurozone, with all this implies. 

·    Deposit flight, business closure and migration will continue and accelerate in this scenario. Asset prices in Greece will reach record lows as people liquidate at any price. Bank capitalisation will take a major hit, resulting in the probably failure of at least one bank.

·    Political extremism may increase, since SYRIZA’s tactics until now have included occupations and physical attacks against public property and individuals (see their university record). Should Chryssi Avgi remain in Parliament, it becomes extremely difficult to track what will happen. One alternative is that both parties, having gained the respectability of the public office, will stand down their more violent supporters—many of whom have a long track record in street fighting against each other. The history of Greece and any number of other countries, however, indicates that the opposite may take place. In addition to violence between different political groups, I expect increasing violence against journalists, enterprise managers, bankers, certain university professors and other figureheads to take place.

This total break-down in political order is interpreted by some people as a “democratic choice”, and by others will define as blind self-destructiveness. Although I had signalled something like this occurring in February, I did not think at the time that (a) Antonis Samaras would so blindly press ahead with his demand for elections, and (b) that this would occur so quickly, and to such a degree.

In any case, the choice is now crystal clear. No voter, no resident, no worker, no business owner or entrepreneur can pretend to be uninformed of their choices and the consequences thereof. Greece has hit a new low in this past week, and unfortunately looks set to continue its negative trend in the next months.


© Philip Ammerman, 2012
Navigator Consulting Group Ltd.


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