Wednesday, 20 June 2012

Expensive Victory in Greece

Tallying Up the Costs: Below is a detailed graphic showing the Greek election results of June 17 compared to those of May 6. ND and SYRIZA captured a large number of votes that the splinter parties that didn't make it into parliament lost. Moreover, ND appears to have taken some votes from the Independent Greeks, while SYRIZA captured some of the Stalinist (KKE) vote. Even though a 'moderate' old guard majority is now possible, the election outcome shows how polarized Greek society has become due to the lengthy economic downturn. SYRIZA's support has increased five-fold from its former levels. It is now in the position PASOK once inhabited.

It will vigorously resist the policies an ND led government is likely to pursue and resistance will probably not merely be confined to parliamentary debate (think strikes, demonstrations, etc.).

The two recent elections in Greece compared.

However, as we have mentioned previously, there is no way the bailout agreement can be implemented in its original form anyway. This has now been officially confirmed.

„Greece and its international lenders will renegotiate the programme on which its second financial bailout is based because circumstances have changed, a senior euro zone official said on Tuesday.
Greece secured a second, 130 billion euro ($164 billion) bailout package in February from Europe and the International Monetary Fund, but an inconclusive general election in May and a return to the ballot box last Sunday delayed the implementation of the conditions attached to the bailout.
Greek parties are currently in talks to create a coalition government with a mandate to renegotiate the terms of the bailout, which has staved off national bankruptcy, but at the cost of deeply unpopular austerity measures.
The United States, the largest IMF member, said it supported discussions to review the Greek bailout programme, but German Chancellor Angela Merkel has said that loosening Greece's reform promises would be unacceptable.
"Anybody who would say that we need not, and cannot renegotiate the MoU (memo of understanding) is delusional, because he, or she, would be under the understanding that the whole programme, the whole process, has remained completely on track ever since the weeks before the Greek first election," the official said.
"Because the economic situation has changed, the situation of tax receipts has changed, the rhythm of implementation of the milestones has changed, the rhythm of privatisation has changed, if we were not to change the MoU, it does not work," he said.
"We would be signing off on an illusion. So we have to sit down with our Greek colleagues and say: this is where we should be in July, and this is where we are in July, and there is a delta. Let's find out what the delta is and then how to deal with the delta – that is a new MoU," the official said.“

(emphasis added)
While it doesn't quite amount to a complete Pyrrhic victory yet (Pyrrhus of Epirus was forced to conclude way back when – in 279 B.C., to be precise: „If we are victorious in one more battle with the Romans, we shall be utterly ruined“), it certainly comes close. All these re-negotiations and mooted alterations of the bailout program are inevitably bound to cost a lot more money. Whose money? You have one guess.
As German news magazine 'Der Spiegel' reports, 'Greek coalition could be expensive for Germany'.

„Greece's magic number these days appears to be three. According to preliminaryelection results, the conservative party New Democracy (ND) is three percentage points ahead of the left-wing coalition Syriza. That means that ND head Antonis Samaras has three days to assemble his coalition. And there are indications that his government may ultimately include a trio of parties.
One of those parties is the socialist PASOK, led by Evangelos Venizelos. But following a meeting with Samaras on Monday evening, Venizelos said that the pair has not yet reached agreement. "We need to find a solution by tomorrow evening," he said, and added that he favored as broad a coalition as possible and asked that Greek President Karolos Papoulias call a meeting of leaders of the most important parties.
With talks already approaching conclusion, Venezilos' demand is notable. After all, a coalition between the ND and PASOK would be plenty to secure a functioning parliamentary majority of 162 out of 300 seats. The last elected prime minister, Giorgios Papandreou, governed with but a single-vote majority.
Still, it would make sense for Samaras to follow Venizelos' suggestion. PASOK is instable and rife with internal power struggles, the result of plummeting from 44 percent support in 2009 to just 12 percent today. Venizelos has even seen fit to threaten some particularly obstreperous members with ejection from the party.
But what is good for Samaras may not be good for Germany and Europe. According to a report in the Wall Street Journal on Monday afternoon, ND and PASOK will ask Europe for a two-year extension to the deadline by which they are to meet their fiscal targets. Citing officials involved in the preparation of the request, the paper reported that Greece would need an additional €16 billion in aid funding as a result, on top of the €130 billion Europe earmarked for the country earlier this year.

(emphasis added)
It seems to us 'three' is not the only 'magic number'. The other one is '€ 16 billion'. Such estimates more often than not tend to turn out to be too low, so there is the strong possibility that this particular magic number will grow. Of course one should not lose sight of the fact that the entire bailout rigmarole is in the main meant to keep up appearances. The money that is sent to Greece is usually sent back to where it came from on the very same day to pay off its creditors. Thereby the illusion that unpayable debt can one day be repaid is maintained. The confidence game thus continues.
It is interesting that PASOK has apparently self-destructed almost completely. This is actually a good thing – the party has been a major factor in establishing corruption and inefficiency in Greece's administration through its patronage system. The entrenched PASOK network represented by public trade unions and the bureaucracy was actually actively sabotaging the reform efforts under Papandreou (see our previous article on 'Deep PASOK'). It is not quite clear to us whether these forces have have actually disappeared, but it seems likely that that they will be in search of a new patron now. Perhaps the weakness of PASOK has temporarily weakened their influence in turn.
Contrary to what happened after the previous election, the Athens stock market celebrated the result this time around. How well that really bodes for the future remains to be seen, but getting a thumbs-up from the financial markets is certainly better than the alternative.
Moreover, deposits are now trickling back into the Greek banks – the bank run has been reversed, at least for the moment.

The Athens General Index already began to rise ahead of the election on speculation that the ND might win. The uptrend has continued so far this week – click chart for better resolution.

One thing is perfectly clear though – the eurocracy has been taught a valuable, if increasingly expensive, lesson. It was once held that making the euro area bigger would automatically make it better, even if one invited nations with a well-documented historical propensity to stiff their creditors in. Sometimes you do have to look a gift horse in the mouth. Especially if it happens to be of Greek origin.

Quidquid id est, timeo Danaos et dona ferentes – as Laocoon wisely remarked upon spotting the gift horse.
(Image source: unknown, the Web)

Charts by: Der Spiegel, StockCharts

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