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Wednesday, February 15, 2012

Liaising With The Right People?

Antonis Samaras (see picture), the leader of Greece's centre-right New Democracy party, has made people in Athens, Brussels and elsewhere sweat quite a bit with his aversion to giving a written commitment to the latest austerity package.

However, he has finally bowed to pressure. Here is a link to the letter Samaras sent to the European Commission, the ECB and the IMF to reassure them that he will stick to the latest round of austerity measures adopted by the Greek parliament on Sunday if he wins the next general elections in April.

Predictably, media reports are focusing on the following part of the letter,
If New Democracy wins the next election in Greece, we will remain committed to the [Greek Stabilisation] Programme’s objectives, targets and key policies.
Given that former Greek Prime Minister George Papandreou has already sent over to Brussels a similar commitment on behalf of his Socialist PASOK party, on the surface Greece seems to have made another crucial step towards its second bailout.

However, doubts remain over the strength and the actual relevance of the commitment sought by Greece's public lenders. Firstly, as Samaras specifies in his letter,
Prioritising recovery along with the other objectives, will only make the [Greek Stabilisation] Programme more effective and the adjustment effort more successful. Therefore...policy modifications might be required to guarantee the Programme’s full implementation. And, once again, we intend to bring these issues to discussion along with viable policy alternatives.
Indeed, this is supposed to happen "strictly within the framework outlined by the Program, so that the achievement of its objectives will not be put at risk." Still, this reads like a clear hint that, at some point, Samaras may want to give a boost to Greece's public spending in the name of economic recovery.

Secondly, and most importantly, are the Commission, ECB and others really liaising with the right people in Greece? In other words, is a written commitment from only PASOK and New Democracy enough to ensure that Greece will keep doing its homework regardless of who wins the next elections? According to the latest opinion polls, the answer seems to be a 'no'.

In fact, Samaras' party is currently polling at 31% - definitely not enough to secure an absolute majority in the Greek parliament. The problem is that New Democracy's 'natural' ally in a hypothetical coalition, the far-right LAOS party, recently withdrew its support for Lucas Papademos' technocratic government precisely because it didn't want to back the latest round of austerity imposed on Greece.

Crucially, the polls show that not even a German-style (unlikely) Große Koalition between New Democracy and Papandreou's PASOK would be enough. With PASOK credited with only 8% of votes, the two parties would put together less than 40% of votes - still not an absolute majority.

In other words, Athens' public creditors seem to have lost touch with the political reality in Greece. And the reality is that, as the two 'mainstream' parties are increasingly seen as mere executors of the requests coming from the EU, Germany, France and others, the Greek electorate is moving towards the extremes of the political spectrum. As the FT's Gideon Rachman points out, three far-left parties account for 42.5% of the votes - so potentially more than New Democracy and PASOK together.

Perhaps the European Commission should try and pick up its interlocutors a bit better. Or, perhaps, people in Brussels think that Greek voters will feel 'encouraged' to vote for either New Democracy or PASOK as they are the only two parties which can make sure that Greece gets its second bailout...

1 comment:

Rik said...

1. No non-Greek politician can sell at home the situation in which the first term of rescue 2.0 is paid and 1 or 2 months later a new Greek government starts to reneg.
The first term here could be something like 100 Bn in total.
2. When that would happen the EFSF over who the financing goes would be deep under water needing paying capital in iso the vague guarantees the EFSF has now.
Also running over national budgets with likely requiring direct cuts on other issues.
3. So this won't happen. There should be hard guarantees and no yes, but maybe..., like with the Samaras letter.