Greeks Are Going to Polls, Afraid No One Will Win
Eirini Vourloumis for The New York Times
The leader of the
establishment New Democracy party, Antonis Samaras, at a rally in
Athens. He proposes pushing for a better deal from lenders for the Greek
bailout.
By RACHEL DONADIO and STEVEN ERLANGER
Published: June 16, 2012
ATHENS — Greeks head to the polls on Sunday for the second time in two
months with a pervasive sense of dread that any government that comes to
power will fail to resolve the political and economic turmoil that threatens the country’s future — and the financial stability of Europe itself.
Related
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Troubled Greek Economy Is Being Left to Fend for Itself (June 16, 2012)
Eirini Vourloumis for The New York Times
A Chinese television crew at a rally for Syriza, a
leftist party whose leader, Alexis Tsipras, contends the bailout deal is
unworkable.
If the establishment center-right party New Democracy ekes out a victory in a race that polls show as tight, Greece
still faces weeks or months of negotiations with European lenders over
the terms of its austerity program, which all parties agree are too
onerous to enforce on its rapidly shrinking economy.
A victory by the leftist party Syriza promises a more serious confrontation, especially with Germany, over how — and perhaps whether — to keep Greece in the euro zone.
The winner will also face an uphill battle to inject confidence into a
paralyzed economy that depends heavily on the continued infusion of
money by the European Central Bank.
The Frankfurt-based bank has become the last lifeline for a financial
system that has all but seized up and a deficit-ridden government that
has little ability to raise new revenues or borrow money to continue its
operations.
On Monday, as Greece tries to determine whether it has a viable new
government, leaders of the G-20 group of developed and emerging
economies will gather in Mexico, where they are expected to debate ways
to keep the Greek crisis and the weakness of the bigger economies of
Spain and Italy from undermining the euro and dragging the global
economy into a new recession.
Central bankers from Tokyo to Washington have already pledged to
intervene in financial markets if necessary to shore up those economies,
but the Greek drama nonetheless threatens to keep investors on edge for
weeks to come.
“I would be very surprised if — ta-da! — everything is clear,” said
Peter Westaway, chief economist for Europe at Vanguard Asset Management.
“We could be in for a protracted period of uncertainty, which would not
be helpful, either.”
If, as in the May elections, there is no clear winner, political leaders
have said they are committed to forming a government no matter what. In
any event the new government will have to open new talks with the big
European powers and press for a more generous bailout. “They will be
sitting around the table with each other, and then some compromises can
be struck,” Mr. Westaway said.
There is no mechanism to kick Greece out of the euro, and the two
leading candidates say they have no intention of taking Greece out
voluntarily. Greece could be forced to fend for itself if the European
Central Bank decides that it is a fool’s errand to keep replenishing
Greek banks that have no collateral or credibility. But the bank’s job
is to protect the euro, and it has repeatedly argued that contagion from
an exit by Greece could outweigh the costs of keeping it afloat.
“It’s in the hands of the E.C.B., and the E.C.B. doesn’t want to be
responsible,” said Simon Tilford, chief economist for the London-based
Center for European Reform. “The E.C.B. will come under great pressure
to rein in support for the Greek banking system, but the bank is quite
concerned about the implications and the risks of contagion if a country
leaves the euro.”
Others increasingly warn of the risk of an “accident” — a bank run
somewhere in the euro zone that spirals out of control, or the Greek
government running out of money to pay salaries and pensions after
paying back creditors — which could quickly precipitate into market
panic and social unrest.
Around 80 percent of Greeks want to remain in the European Union and
within the euro zone, but they also want a radical renegotiation of the
bailout terms. European leaders see this as a contradiction, but Greek
leaders see it as necessary to fight a deepening recession. A
restructuring of private debt as part of a second bailout in February
brought Greece’s debt to 160 percent of gross domestic product, down
from 165 percent but not nearly enough to keep the debt in check or
revive the slumping economy.
A new round of negotiations also became inevitable after Spain, a much bigger economy, got a $125 billion bailout
for its banks on terms that are much less restrictive than the
austerity package demanded of Greece, which unlike Spain had run up a
huge fiscal deficit in better times.
The leader of the New Democracy party, Antonis Samaras, who failed to
form a government despite placing first in last month’s elections, now
talks about pushing for a better deal. Syriza’s leader, Alexis Tsipras,
alternately talks about “ripping up” the bailout agreement and asking
European leaders to replace it with a better plan.
“Brussels, here we come,” he said to a rousing crowd in his final campaign rally here on Thursday.
Beyond the alarmism, there are already signs of back-channel diplomacy.
In an interview on Thursday, Mr. Tsipras said that his conversations
with the German ambassador in Athens and with others in Germany “assure
us that we will be able to continue negotiations.”
Some foreign investors and much of the country’s business elite are
depicting a Syriza victory as a kind of Armageddon, with the countdown
toward a Greece exit from the euro zone beginning on the day it takes
power. Yet there is also a consensus that Mr. Tsipras’s central
contention — the second bailout deal is unworkable and needs to be
replaced — is basically right.
“The memorandum of understanding is dead,” said Anthony Kefalas, adviser
to the president of Greece’s leading business lobby, the Hellenic Federation of Enterprises. “It is politically dead, because in the previous elections a majority voted against it. It is also economically dead.”
The deal calls for Greece to reduce its primary budget deficit to 1
percent of gross domestic product by the end of this year, and for an
additional $14.5 billion, or 5 percent of gross domestic product, in new
spending cuts or tax increases over the next two years, because a
deepening recession has caused Greece to miss budget-deficit targets.
While the so-called troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund
— may be willing to modify the agreement, in particular by giving
Athens more time to repay, it is considered unlikely to change the
fundamentals.
“Everyone knows that whatever they call it — and they won’t call it a
renegotiation — there will have to be a de facto renegotiation of the
bailout memorandum,” said Mark Leonard, director of the European Council on Foreign Relations.
“If Syriza is the largest party, it will add to the general sense of
panic and will push the Germans to do more” to ease pressure on the
euro, he said. “The Germans are trying to slow things down, worried
they’ll be forced into financial commitments without political
commitments in place.”
But it is also clear that Germany, with its own internal politics, is
unwilling to write a blank check, albeit loans with interest, for the
rest of the euro zone. Even Germany is not big enough to bail out Spain
and Italy, and the German government is holding firm before Sunday’s
vote.
On Thursday, Chancellor Angela Merkel told her Parliament that
“Germany’s powers are not unlimited,” and that the world should not
overestimate Germany’s ability to resolve the euro crisis without a
fundamental, controversial and time-consuming move toward a fiscal and
political union of the euro zone, with central oversight over national
budgets and banks.
The Greeks “can vote however they want,” the German finance minister,
Wolfgang Schäuble, said last week. “But whatever election result we have
will change nothing about the actual situation in the country, which is
in a painful crisis brought on by a decades-long flawed economy.”
Mr. Schäuble told the magazine Stern that he had sympathy for the
Greeks, but added: “The Greek minimum wage is just dropping to the level
of Spain. If the country wants to become competitive again, it has to
sink.”
It has been sinking, Greeks say, as they cut their budgets and think
about making Mr. Tsipras, only 37, their new prime minister, to shake up
what everyone agrees has been a political system rotten with cronyism
and corruption. While New Democracy appears to be running neck-and-neck
with Syriza, many say they believe that Europe’s best chance to
negotiate a lasting deal with Athens — and to keep down social unrest at
home — would be if Syriza is in the government and part of whatever
emerges.
“We have a brand new political landscape and it will change a lot more
in the years to come, because the austerity collapsed the center,” said
Nikos Xydakis, a political analyst and an editor at the daily newspaper
Kathimerini. He added that the next Greek government would not have much
staying power.
“The problems are huge,” he said. “Actually, the country faces
collapse,” and no Greek political party has the “moral power” to win
over the electorate, or “huge support from Europe.”
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