ALL week long the European media has been abuzz with all sorts of scenarios regarding next Sunday’s Greek election.
Will Greece leave the eurozone – dubbed “Grexit” by those who write the headings above news reports and analyses? Will Greece default on its debts? What will the economic consequences be for Europe?
Having read close to 20 different opinions, I must confess that I feel slightly dizzy, as if I have just consumed too much of my favourite tipple. Economists never seem to be able to agree on much.
So let us start on the political terrain, where I feel much more comfortable and firm on my feet.
On Sunday, the Greek voters will be visiting the election booths for an early election, made necessary after their parliament could not decide on a successor to the ceremonial head of state, President Karolos Papoulias (85). This election, everyone agrees, will be crucial for Greece’s future, and - depending on your point of view - perhaps also for Europe.
The latest opinion polls show a lead for Alexis Tsipras’ Syriza party. If the polls are correct Syriza, a leftist populist party, will garner 35% of the votes, compared to the 31% of the conservative New Democracy, led by Prime Minister Antonis Samaras.
The other smaller parties, including the neo-fascist Golden Dawn, trail badly.
Tsipras is a severe critic of the European Union-induced state spending cuts and has pledged to default on the gigantic Greek state debt and to increase state spending drastically. Samaras wants to continue on the present course.
In order to understand this, we have to consider the recent historical context.
Government lied about budget deficit
Greece is notorious for its lackadaisical approach to corruption, free spending and lack of hard work. When the country joined the eurozone, it had to promise (just like the other members) not to let its budget deficit exceed 3%. However, successive governments lied about this, and in 2009 it was revealed to be a whopping 13.6%.
This was brought about by the state spending money as if it was water, and by tax evasion being a national sport honed to a great art. In addition, Greeks liked to retire at about 50, thereafter living happily ever after on a state pension, paid from borrowed money.
But paradise never lasts. In December of that year, a credit rating agency predicted that the country would default on its ballooning debt and downgraded it, pushing it even further into debt.
At that stage, Greece’s problems were quite new to the eurozone. If Greece defaulted and dragged some of its banks along, the eurozone stood unprotected. There was a danger that Greece could start a domino effect and add sufficient weight to the growing economic crisis to end in a total EU crash.
The EU, therefore, had no alternative; it had to pull Greece out of the hole the Greeks had dug for themselves. Two successive bailouts, worth €147bn and €109bn respectively, followed to keep the country afloat.
Nevertheless, the bailouts were accompanied by two strategic decisions.
The first was to put up financial and economic fortifications to prevent Greece (whose economy adds about 2% to the eurozone as a whole) from pulling Europe under. This has now been completed.
Horrendous social misery
The second was to compel the Greeks to rein themselves in and introduce strict austerity. Indeed, they succeeded in bringing about a small budget surplus. The economy, having contracted by about a quarter, last year grew by 0.6%, but the price was extremely high - some say too high. Unemployment reached 28% last year, and youth unemployment even 60%. The social misery is, without question, horrendous.
Sunday’s election takes place against this background. Syriza is courting votes by promising to stop the present coalition’s austerity programme, and many voters are apparently attracted by it.
A complicating factor is the strange Greek election system. Of parliament’s 300 seats, 250 are assigned via proportional representation, but the other 50 are awarded to the party which gains the most votes. The outcome is, therefore, poised on a knife-edge.
There is a chance that Syriza might get a majority of seats in parliament, although it is by no means certain. It is equally possible that Syriza will have to seek one or more coalition partners. If it does not succeed, Samaras’ New Democracy might get a chance.
What about the consequences for Europe? Well, a heavyweight like German Chancellor Angela Merkel has made it known that if Greece wants to go its own way, it is welcome to do so. She has effectively told the Greeks to go to hell.
Which means that Merkel, at least, thinks the fortifications thrown up against a Grexit are sufficient. Many economists disagree, but then, the species Homo Economicus is not known for its ability to agree about much.
The proof of the pudding, they say, lies in the eating.
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
Will Greece leave the eurozone – dubbed “Grexit” by those who write the headings above news reports and analyses? Will Greece default on its debts? What will the economic consequences be for Europe?
Having read close to 20 different opinions, I must confess that I feel slightly dizzy, as if I have just consumed too much of my favourite tipple. Economists never seem to be able to agree on much.
So let us start on the political terrain, where I feel much more comfortable and firm on my feet.
On Sunday, the Greek voters will be visiting the election booths for an early election, made necessary after their parliament could not decide on a successor to the ceremonial head of state, President Karolos Papoulias (85). This election, everyone agrees, will be crucial for Greece’s future, and - depending on your point of view - perhaps also for Europe.
The latest opinion polls show a lead for Alexis Tsipras’ Syriza party. If the polls are correct Syriza, a leftist populist party, will garner 35% of the votes, compared to the 31% of the conservative New Democracy, led by Prime Minister Antonis Samaras.
The other smaller parties, including the neo-fascist Golden Dawn, trail badly.
Tsipras is a severe critic of the European Union-induced state spending cuts and has pledged to default on the gigantic Greek state debt and to increase state spending drastically. Samaras wants to continue on the present course.
In order to understand this, we have to consider the recent historical context.
Government lied about budget deficit
Greece is notorious for its lackadaisical approach to corruption, free spending and lack of hard work. When the country joined the eurozone, it had to promise (just like the other members) not to let its budget deficit exceed 3%. However, successive governments lied about this, and in 2009 it was revealed to be a whopping 13.6%.
This was brought about by the state spending money as if it was water, and by tax evasion being a national sport honed to a great art. In addition, Greeks liked to retire at about 50, thereafter living happily ever after on a state pension, paid from borrowed money.
But paradise never lasts. In December of that year, a credit rating agency predicted that the country would default on its ballooning debt and downgraded it, pushing it even further into debt.
At that stage, Greece’s problems were quite new to the eurozone. If Greece defaulted and dragged some of its banks along, the eurozone stood unprotected. There was a danger that Greece could start a domino effect and add sufficient weight to the growing economic crisis to end in a total EU crash.
The EU, therefore, had no alternative; it had to pull Greece out of the hole the Greeks had dug for themselves. Two successive bailouts, worth €147bn and €109bn respectively, followed to keep the country afloat.
Nevertheless, the bailouts were accompanied by two strategic decisions.
The first was to put up financial and economic fortifications to prevent Greece (whose economy adds about 2% to the eurozone as a whole) from pulling Europe under. This has now been completed.
Horrendous social misery
The second was to compel the Greeks to rein themselves in and introduce strict austerity. Indeed, they succeeded in bringing about a small budget surplus. The economy, having contracted by about a quarter, last year grew by 0.6%, but the price was extremely high - some say too high. Unemployment reached 28% last year, and youth unemployment even 60%. The social misery is, without question, horrendous.
Sunday’s election takes place against this background. Syriza is courting votes by promising to stop the present coalition’s austerity programme, and many voters are apparently attracted by it.
A complicating factor is the strange Greek election system. Of parliament’s 300 seats, 250 are assigned via proportional representation, but the other 50 are awarded to the party which gains the most votes. The outcome is, therefore, poised on a knife-edge.
There is a chance that Syriza might get a majority of seats in parliament, although it is by no means certain. It is equally possible that Syriza will have to seek one or more coalition partners. If it does not succeed, Samaras’ New Democracy might get a chance.
What about the consequences for Europe? Well, a heavyweight like German Chancellor Angela Merkel has made it known that if Greece wants to go its own way, it is welcome to do so. She has effectively told the Greeks to go to hell.
Which means that Merkel, at least, thinks the fortifications thrown up against a Grexit are sufficient. Many economists disagree, but then, the species Homo Economicus is not known for its ability to agree about much.
The proof of the pudding, they say, lies in the eating.
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.