Greek Election Results: No Victory For the Euro
Investors have found some relief in Sunday’s Greek election, when the pro-bailout New Democracy (ND) party managed to eke out a victory over the radical left-wing Syriza party.
While Sunday’s election may have dispelled fears of the worst-case scenario -- a very soon Greek exit, or Grexit, from the euro-zone -- the election was a far cry from a victory for the future of the European Union and the global economy. The ND party was unable to secure an outright majority, realizing only 30% of the vote, which will most likely result in contentious coalition talks with their traditional rival, PASOK, who placed in third with 12%. The radical left-wing party, Syriza, came in at a close second to ND with 27% of the vote. Syriza gained tremendous support for its vocal opposition to austerity and vows to fight the pro-austerity opposition in Greece. In that spirit, Syriza’s leader, Alexis Tsipras, immediately rejected the call to be a part of the coalition that would impose harsh austerity measures.
The PASOK party appears more willing to cooperate. The leader of the party and former finance minister Evangelos Venizelos announced his readiness to work with as many parties as possible in an effort to promote a government of shared responsibility. Neither side, however, is expected to take ownership of the current adjustment program advocated by the European Central Bank, the European Commission and the International Monetary Fund (together known as troika). Both ND and PASOK assert that the measures imposed by troika are too austere for a country whose unemployment rate is 22%, and whose GDP is expected to contract by 5% in this year alone. Even so, international creditors are expecting Greece to press ahead with their spending cuts, further angering an already angry and wearied public that has swallowed two years worth of bitter austerity medicine. Given the deep anti-austerity sentiment in Greece, to accept the bailout in its present terms, keeping the current austerity measures on track, will irrefutably result in social turmoil.
There appears to be no political consensus on how to move forward in the uncompetitive and divided country where employees of state-owned enterprises earn nearly twice as much as employees of private enterprises. While it is unlikely that PASOK and ND will maintain a stable long-term government together, it is time to put aside the politics to ensure that the failed May 6th election is not repeated. The coalition has only a few weeks to cut 5% of the country’s GDP and enact structural changes that many people believe they will be too weak to implement. Now is not the time to kick the can down the road and wait for the perilous economic situation in Greece to worsen.