The show(down) must go on: Coalition row over closure of Greece's public broadcaster continues

Last week, we noted on this blog that the abrupt closure of Greece's public broadcaster ERT risked opening a rift in Greece's ruling coalition - as Prime Minister Antonis Samaras took the decision without the approval of his junior coalition partners, PASOK and Democratic Left.

Tensions have actually mounted within the coalition, and all eyes are now on a meeting later on today between Samaras, Evangelos Venizelos and Fotis Kouvelis (the leaders of PASOK and Democratic Left respectively). Here's a quick update of what happened over the weekend:

• After both PASOK and Democratic Left hinted at snap elections as a possible outcome of the on-going coalition row over ERT, Samaras came up with a compromise proposal: have a cross-party committee hire a small number of workers so that a basic broadcast service (mainly news bulletins) could resume as soon as possible;

• Samaras's coalition partners have both turned the offer down. They concede ERT needs restructuring, but want the state broadcaster to stay open while such a restructuring takes place;

• This makes today's meeting (scheduled for 5.30pm GMT) very interesting. Venizelos and Kouvelis are apparently not planning to make doorstep statements after the meeting with Samaras, but will wait to speak until they are back at their respective party headquarters - possibly another sign that tensions are running high;   

• German Chancellor Angela Merkel yesterday spoke to Samaras over the phone and reminded him that "it is of vital importance" for Greece to stick to all its commitments with the EU-IMF-ECB Troika, including "those relating to public sector reform." Just a coincidence? Or an invite to Samaras to stick to his guns on ERT closure? 

• Meanwhile, Alexis Tsipras, the leader of the largest opposition party, SYRIZA, is to deliver a speech in Syntagma Square this evening - right in front of the Greek parliament. No doubt he will use it to call for the government to resign.

• Finally, it's worth keeping in mind that ERT workers have appealed to the Council of State - Greece's highest administrative court. The Council of State should issue its verdict later on today, and many expect it to order that ERT be immediately re-opened. Paradoxically, the ruling could help put an end to the coalition row. However, it would almost inevitably also weaken Samaras's position - given that his initial decision to shut down ERT would be overturned.  

We will keep a close eye on any future developments, so make sure you follow us on Twitter @OpenEurope if you want to stay on top of the latest events in Greece.   

Will the closure of public broadcaster set the scene for a coalition showdown in Greece?

Imagine a Number 10 spokesperson announcing during the afternoon news bulletin that the BBC has become too expensive to run and will be shut down with immediate effect. You would be excused for thinking that the Government and the Corporation have joined efforts to take you for a ride.

Well, this is exactly what happened in Greece - and it wasn't a joke. Greek government spokesman Simos Kedikoglou went on TV yesterday afternoon to say that the country's public broadcaster ERT would go off the air a few hours later, because it had become a "refuge of poor transparency and waste."

As a result, ERT's almost 3,000 employees have been temporarily laid off. The Greek government says that a revamped and slimmed-down broadcaster (NERIT SA) will be up and running by the end of August. Protests were staged outside ERT's headquarters yesterday and are continuing today, while ERT journalists are still putting programmes on air via digital frequencies and the internet.

A couple of points are worth making at this stage:

• The decision to shut down ERT is clearly linked to Greece's commitment to firing 15,000 public sector workers by the end of next year under its EU-IMF bailout deal, although it's up to the Greek government to choose where to cut. Therefore, it's probably not entirely fair to blame the Troika for this (admittedly pretty extraordinary) decision;

• The fact that the Greek government prefers shutting down ERT altogether and then opening a brand-new company, instead of trimming the existing company down, could be seen as further evidence of how difficult it is to fire public sector workers in Greece - even in cases where inefficiency and waste are evident (at least according to what the Greek government spokesman said);

• On the domestic politics front, Greek Prime Minister Antonis Samaras has decided to go ahead with the closure of ERT despite open opposition from his coalition partners - PASOK and Democratic Left. The latter now want to submit a draft bill to scrap the decision, meaning that there is a risk of a coalition split - unless someone blinks.  

As the Troika has long suggested, it is clear that Greece's bloated public sector needs to be downsized significantly. That said, it is also clear that this situation has been poorly handled, particularly given the wider political and social tensions already at play in the country. The fallout of this story might be worrying - further splits in the governing coalition and wider public backlash against an austerity programme for which there is already very little buy-in.

We will keep monitoring the situation and give further updates on Twitter @OpenEurope.

Economic realities push Europe closer to a Greek decision

We have a piece in City AM today, which look's  at the impact of this week's crucial votes in Greece, see below for the piece in full:

One down, one to go. The Greek government has got through one crucial vote this week and looks likely to ride out the budget vote on Sunday. Although markets and eurozone leaders will breathe a sigh of relief as Greece makes it through another crucial week in its economic crisis, the government has not been left unscathed.

Pushing through the latest, and supposedly last, package of stringent economic reforms and budget cuts has exposed deep cracks within the governing coalition, as the Democratic Left and Pasok parties put up a fight to slow the process of public sector cuts led by Prime Minister Antonis Samaras’ New Democracy party. It took two days to push the package through parliament, while a reported 100,000 Greeks took to the streets in Athens to protest against austerity, once more leading to violent clashes with police.

However, a bigger problem for the government is the flurry of economic figures which have again exposed deeper flaws in the Greek economy, propelling talk of a Greek exit from the eurozone back into the headlines. The new budget projects Greek debt peaking at 192% of GDP, rather than the 167% estimated previously, but even this revision seems to be built on optimistic assumptions. Unemployment, investment and exports are all projected to stabilise, despite most indicators predicting the opposite. In fact it is now abundantly clear that Greece will need an extension to its current bailout.

The questions to ask then are: how much would such an extension cost and how could it be funded? We estimate that slowing the Greek fiscal consolidation programme by two years could cost an extra €28.5bn (rising to €39bn if Greece fails to borrow from the markets – something which looks increasingly likely). The main options being proposed include: reducing the interest rates which Greece pays on its current bailout loans (which could raise around €3bn over two years) or putting a hold on interest payments for a few years (which could raise €10bn+, but would be much trickier legally). These options would likely be combined with some further austerity and increased short term debt issuance by Greece – both of which could actually increase Greek debt levels, not exactly what is needed. The kicker is that even this is unlikely to be enough.

The question of an extension then, drives home that a larger decision on Greece’s position in the eurozone is closing in on EU leaders. Even talk of using bailout loans to buy back Greek debt at a discount and then retire it, to provide extra funding, would require a big political decision on further loans to Greece. However the funding is found, it will likely involve breaking a taboo – either by the ECB (in terms of helping to fund states) or more likely by eurozone countries in allowing permanent transfers to a country whose future funding is far from assured.

The Greek government and the eurozone will make it through this week but this short-term success is likely to belie the massive decisions ahead.

A big week for Greece - but still few answers

As we noted in our press summary today, this week is lining up to be another big one for Greece.

The Greek government faces two crucial votes in parliament – first on Wednesday to push through the latest package of structural reforms (as demanded by the EU/IMF/ECB) troika and second on Sunday to approve the latest and, according to Greek PM Antonis Samaras, the last austerity budget for next year.

Since the governing coalition was formed after the second summer elections, such votes have usually passed without much fanfare. However, this time around the Democratic Left (which holds 16 seats in parliament) has said it will not vote with the its coalition partners. Pasok (which holds 31 seats) is also facing a period of internal strife with one MP already leaving and up to five others threatening to at least vote against the government. New Democracy (127 seats) should have an easier job pulling its MPs together.

The votes should pass but the margin for error is tiny, possibly only two or three votes, notably provoking unrest amongst financial markets and other eurozone leaders. In the end, given that the end of the government would very possibly signal the end of Greece as eurozone member, the (perceived) fear factor is likely to be enough to once again push the vote through.

This clears the way for the release of the next €31.5bn tranche of bailout funds and a potential two year extension to the Greek bailout. Today’s FT notes that the extra funding for the extension is likely to come from an increase in short term debt issuance by Greece and possibly a reduction in interest rates on eurozone loans to Greece – exactly as Open Europe predicted in its recent flash analysis on the issue.

The FT article also includes a potential plan for the ECB to return profits from its purchases of Greek bonds to Greece via eurozone governments to avoid the thorny issue of the central bank directly financing a state. This sounds plausible on the surface since the returning of profits to national governments should happen naturally anyway under the ECB rules. The only issue being that this can only happen overtime as the profits accrue as the bonds are paid off, so its unlikely to be paid out in a single chunk at one time (as is needed here).

One final point on the cost of the extension. We put it at around €28.5bn, although estimates range from €15bn to €40bn. We didn’t include a delay in Greece’s return to borrowing from the markets, which is looking increasingly likely. If Greece doesn’t return to borrowing until after 2016 it could add a further €10.6bn to the cost of an extension.

So although this is a big week for Greece, even a clear government win in both votes will do little to answer questions over Greece’s future in the eurozone.

And on the second day...

The second day of talks on the formation of the new Greek government has so far seen no major surprises. As we predicted in our response to the election results that we put out yesterday, PASOK leader Evangelos Venizelos' refusal to join a 'national unity government'. unless left-wing SYRIZA were on board, for most part turned out to be political posturing. Things now seem to be heading towards a three-party coalition with election winner New Democracy, PASOK and Democratic Left.

The latest developments:

• As widely expected, both SYRIZA and right-wing populist Independent Greeks have said "Thanks, but no thanks" to New Democracy leader Antonis Samaras' offer to take part in the new coalition;

• Samaras also met Venizelos and Democratic Left leader Fotis Kouvelis yesterday. After the meeting, Venizelos insisted that the best solution would be to have a four-party coalition with SYRIZA in, although he stressed that "the country must have a government by tomorrow [i.e. today]";

• Kouvelis suggested that his party was willing to form part of the new government, although he added that he would sign "no blank cheques" to Samaras;

• Venizelos and Kouvelis (in the picture) met this morning. After the meeting, Kouvelis said an agreement is in sight and could be reached "within hours". A tripartite coalition with New Democracy, PASOK and Democratic Left would hold 179 of the 300 seats in the Greek Vouli - which the European Commission and other eurozone countries could see as sufficient to start talking of minor revisions of the Greek bailout programme; 

• Venizelos suggested that, in parallel to the new government, Greece should also set up a negotiating team to discuss the revision of the bailout terms in Brussels. This group, he said, should clearly include SYRIZA - now the second-largest party of the country. However, SYRIZA has dismissed Venizelos' plan as a "publicity stunt"; 

• Meanwhile, there seems to be a bit of confusion on what Greece could actually achieve from the re-negotiation of its bailout terms - which, according to us, will be a couple of minor adjustments but no changes to the thrust of the agreement. A senior European official is quoted as saying, "If we were not to change the [EU-IMF] Memorandum of Understanding we would be signing off on an illusion. There is scope for revision." He added that a new MoU would be signed "during the summer." However, the prompt reply from European Commission spokesman Amadeu Altafaj Tardio is that "nobody is talking about a new MoU". 

• On a slightly separate note, Die Welt notes that PASOK - the party - is actually proportionally in more debt that Greece itself. It owes banks some €130 million - i.e. 18 times its annual income. Election winner New Democracy is also reported to be heavily indebted. This is partly due to the fact that Greek political parties get state funding based on their share of votes in the general elections, and support for PASOK has been shrinking since its last victory in 2009. 

Anti-austerity inside the eurozone: Greek voters stick to their potentially false choice

The key trend in Greek opinion polls holds steady: voters back anti-austerity parties in great numbers but  remain committed to staying in the euro in equally great numbers. The latest Public Issue poll released yesterday put the radical left Syriza as the largest party with 30% of the vote, New Democracy on 26% and Pasok on 15%. The figures suggest a surge in support for Syriza but also a move back towards the larger parties, with smaller parties falling in the polls.

Interestingly, a poll from Ipsos suggests that 70% of Greeks would vote to keep the euro if a referendum on the issue were held today, this compares to 50% of Italians, 62% of French, 51% of Germans and 55% of Spaniards. Interestingly, 38% of Italians would vote to leave the euro if a referendum was held today - that's quite high given the country's traditional support for the single currency.

On a less surprising note, from today's Die Welt we learn that fears over Greece leaving the euro has triggered yet more Greek tax evasion. Greek tax revenues between January and April were €500m lower than anticipated in the 2012 budget, while April’s takings fell by 13% on the previous year.

That is not a good sign.

No Good News From Greece

Today's negotiations in Greece on the creation of a government of technocrats have broken down. Talks will resume tomorrow morning, but only in order to appoint a caretaker cabinet which will remain in office until new elections take place - in all likelihood as early as mid-June.

Although widely expected, the outcome of today's meeting is going to create further political and economic uncertainty over the future of Greece in the eurozone. So what could happen now?

First off, it's by no means certain that a stable government will come out of the next elections. The latest polls indicate that left-wing SYRIZA could be the biggest party, but it would still have to form a coalition government. However, following the latest tough round of talks, the outspoken leader of SYRIZA Alexis Tsipras (in the picture with Greek President Karolos Papoulias) doesn't seem to have many friends - the Communist Party has ruled out a left-wing coalition since the very beginning of the electoral campaign, and Democratic Left leader Fotis Kouvelis said yesterday that he would no longer cooperate with Tsipras, even after new elections. On the other hand, Tsipras has repeatedly said that he doesn't want to become a 'complicit' of New Democracy and PASOK - the only two Greek parties that insist on the need for Greece to stick to the EU-IMF bailout programmes.

Needless to say, this would complicate Greece's position vis-à-vis its eurozone partners. As Eurogroup Chairman Jean-Claude Juncker told reporters in Brussels yesterday, there could be some room for Greece to negotiate a relaxation of its deficit targets if a serious new government can be formed. As we pointed out here, Greece may well be heading towards a series of inconclusive elections. This would make it very difficult indeed for Germany and the others to justify the disbursement of future tranches of bailout money.

Greece's euro exit is becoming increasingly likely - not just because it's being talked about by a growing number of top European politicians - although we still think that Greece's anti-bailout parties may ultimately soften their stance, potentially paving the way for a compromise. What's most interesting is the fact that figures are being put on the impact of a Greek euro exit (and consequent default). A couple of hours ahead of Francois Hollande's inauguration ceremony, outgoing French Economy Minister Francois Baroin told Europe 1 that Greece's euro exit and default "would have a net cost of €50bn" for France, "plus the debt held by banks and insurance firms in their portfolios." Le Figaro did its own estimates, and put the cost at up to €58.5bn - that is, €895 per Frenchman.

Quite a busy eurozone day. As usual, you can follow our live updates on Twitter @OpenEurope, and continue to check out our blog for updated analysis. 

The buck passing continues in Greece

The political situation in Greece following Sunday's elections is getting even messier. Following the failure of conservative New Democracy to even begin a serious discussion about forming a government (negotiations lasted all of six hours), the Radical Left (SYRIZA) yesterday also threw in the towel. The "dream" of a leftist Coalition government had failed, said SYRIZA's leader Alexis Tsipras, but added that his party had nonetheless forced Europe to reconsider the Greek bailout package (perhaps a bit premature). 

The buck has now been passed to socialist PASOK, the former governing party which slumped to third in the elections. PASOK leader Evangelos Venizelos said yesterday that he will ask Greek President Karolos Papoulias - who by now must be a seriously nervous man - to give him the go-ahead to start discussions with other parties in a last-ditch effort to try to form a government. If that fails, we're definitely looking at fresh elections, probably in June. The prospects for PASOK succeeding are slim - to say the least.

So what's going to happen? Frankly, heaven knows. As we have noted before, even fresh elections may not generate a stable government, though there's a chance that those people who voted on smaller parties that didn't get over the 3% threshold to enter the Greek parliament, may shift their votes to bigger parties. SYRIZA clearly remains the X-factor, and could potentially pick up more votes. The party has outlined a five point plan - including completely ripping up the bailout agreement - that is simply fundamentally incompatible with the position of the Germans and the IMF. The politics are immensely complicated, but if SYRIZA's support is required for forming a government, then we're basically looking at three potential outcomes:

1) SYRIZA and Germany/IMF stick to their guns, the bailout cash is frozen, Greece defaults and almost certainly leaves the euro
2) SYRIZA caves and Greece is given the next tranche of bailout cash and the charade continues for a bit longer
3) Germany/IMF cave, the bailout terms are revised and Greece is given the cash

Perhaps a path between the second and third options would be possible too - and given the stakes, not unlikely. In any case, it ain't lookin' good.

The beginning of the end game in Greece?

At some point you have to wonder if Greece just enjoys the limelight…

This weekend’s election was expected to be relatively predictable with the largest parties forming a coalition and eventually adhering to the latest EU/IMF bailout package. Most eyes were on the French Presidential election and its impact on the Franco-German axis. Unfortunately, as we predicted, there were still a few surprises in store in Greece. Here’s the (almost) final result:

New Democracy – (18.86%) 108 seats

SYRIZA – (16.77%) 52 seats

Pasok – (13.18%) 41 seats

Independent Greeks – (10.6%) 33 seats

KKE (Communist party) – (8.48%) 26 seats

Golden Dawn (far-right) – (6.97%) 21 seats

Democratic Left – (6.1%) 19 seats

The biggest surprise is clearly the huge rise in SYRIZA’s share of the vote and the drastic fall in Pasok’s share.

In our post in the run up to the elections we laid out three scenarios: a stable ND-Pasok coalition, an unstable coalition leading to new elections where ND win a majority and an unstable coalition which falls leading to a cycle of elections where no-one can win a clear mandate. Those three scenarios clearly still hold, but the probabilities have definitely changed. Previously, the likelihood ran in order, however, now the second and third scenarios are looking increasingly probable.

ND and Pasok only hold 149 seats, short of the 151 majority they need. The Democratic Left has ruled out joining a three-way coalition. This makes new elections (probably in June) essentially inevitable as there is no stable coalition to be formed.

However, given the showing in the elections it is hard to imagine ND, or any party, gaining a clear majority. Given the strength of the anti-austerity feeling in Greece it is unlikely that these results would be a one-off. The anti-austerity parties only look likely to gain ground in subsequent elections, making a stable coalition less likely. This analysis suggests that a cycle of elections looks increasingly probable in Greece.

What does all this mean for the eurozone?

More uncertainty, that’s for sure. Germany and the EU have already both come out to reiterate the need for Greece to maintain its commitment to the latest bailout packages, stress that keeping Greece in the euro requires strong participation from both sides (rather ominous if you ask us).

Unfortunately, this looks unlikely, even if by some miracle ND and Pasok manage to form a workable coalition at some point. ND leader Antonis Samaras has already come out saying that he will “modify the memorandum [of understanding]” with Greece’s creditors to focus on growth. This can probably be seen as the start of his next election campaign but will still send shivers down the spines of German politicians.

A renegotiation of some form looks on the cards and will not be well received. Samaras would still be the EU’s preference given his history of strong rhetoric but then still signing up to the bailout programme. The alternatives are not appealing from eurozone leaders’ perspective: either there is a cycle of elections leaving no government in place to implement the reforms or the anti-austerity feeling grows so strong that a SYRIZA led government of some form comes to power, signalling the end of the bailout programme for good.

There is a confluence of factors here which increases the prospect of a Greek exit from the eurozone. The broader feeling in Greece although still in favour of the euro is shifting strongly against austerity – how this tension will play out is unclear but the usual fall-back of broad public support for the eurozone looks shakier than it has ever been.

Since the last round of poisonous bailout negotiations the eurozone and financial markets have been preparing for a Greek exit, if not publicly than definitely behind the scenes. The stance against any renegotiation and flexibility on reforms has hardened from eurozone leaders. Furthermore, Greece is approaching a primary surplus, the point where an exit and a full default look slightly more attractive as the country could (at least in theory) survive without access to financial markets or direct support.

Greece’s future will not be decided in the next few days but the coming weeks and months could well settle its place in the eurozone once and for all. This election may not provide many answers, as we expected, but it could mark the beginning of the end game in Greece.

Greek elections unlikely to yield any answers

The Greek elections are almost upon us. Much of the attention (including ours) has been focused on the French election, possibly rightly given the potential impact on the Franco-German axis and the austerity approach to the eurozone crisis. The lack of attention may be down to Greece-fatigue following the intense start to the year with the Greek restructuring, or the fact that with a bailout and strict programme in place the room for flexibility with the new government is severely limited. That said, the Greek elections have the potential to be almost as important.

Despite the well documented rise of fringe parties and the strong talk from New Democracy (ND), a coalition between Pasok and ND looks to be the most likely outcome. Combined the parties may gain around 35% - 40% of the vote. The largest party (likely to be ND) gets an extra 50 seats under Greek electoral rules, meaning that the coalition would be the largest combined group in the Parliament and may just scrape a majority. This position will be aided by the fact that all the other parties are fairly disparate and unlikely to form any cohesive opposition.

However, even if this coalition is formed there numerous ways in which it could play out:

1)      Stable coalition – ND and Pasok manage to gain and hold a majority in the Parliament. They set about attempting to implement the EU/IMF bailout package. May be some talk of renegotiating elements of the package, particularly to boost growth. If anyone is to have success on this front it would be this coalition as it has at least some experience and knowledge of negotiating with EU/IMF.

Impact on the eurozone: This added stability would likely be positive for markets and the eurozone in the short term. Ultimately, it will not make much difference since Greek debt still looks unsustainable and implementing the necessary reforms will be a massive challenge on the ground even if they are pushed through parliament. There is less chance of external financing being cut off anytime soon, since the government will at least try to adhere to the programme.

2)      Coalition breaks up, new elections where ND wins a majority – The coalition fails to gain a full majority in Parliament (possibly due to Pasok defections after the deal is struck) or fails after a very short time due to lack of cohesion between parties (especially if ND leader Antonis Samaras feels he could gain a full majority in new elections). Elections delay implementation of EU/IMF package but once ND government comes into power the implementation continues, although calls for growth policies will grow louder.

Impact on the eurozone: Ultimately, depends on how long the coalition lasts and the policies which ND uses in the new election to gain a majority (potentially shift further right if there is growing disillusionment with the EU/IMF austerity).  ND unlikely to push for euro exit or full renegotiation of EU/IMF package so that adds certainty, but the inherent problems with the package (mentioned above and covered in detail here) still hold true. The turnover between elections could be important. Any delay in implementing the package will not go down well with the EU or IMF and could reduce its effectiveness even further.

3)      Coalition breaks up, new elections fail to deliver suitable replacement leading to an election cycle – Coalition breaks down as mentioned above, but this time the new elections fail to deliver a clear winner, possibly with an even greater move towards the far left and far right parties. This would likely trigger a series of unstable coalitions and probably more elections. Once this cycle has begun it will be hard to break, particularly with Greece’s economic situation seemingly only getting worse.  

Impact on the eurozone: This would be the worst of all outcomes. The EU/IMF package would fall by the wayside due to lack of willingness or a government to implement it. If a cycle of elections does take hold it could feed anti-euro sentiment, although anger has, for now, been largely directed at the austerity bailout rather than euro membership more generally. This would eventually result in funding being cut off and Greece probably having to exit the eurozone. This is unless such a threat galvanises the population to vote a single party supporting the euro into power.

Overall, a ND-Pasok coalition looks likely but it will probably be far from stable. It is definitely hard to see it serving a full term. The most likely outcomes (1 and 2 above) may deliver some short term certainty but problems loom large for Greece over the medium to long term. The EU/IMF package still looks unachievable for Greece and will not solve its debt sustainability problems, while there is surely a tipping point where the Greek population withdraws its support for the euro more. At the moment this is still some way off. These elections will certainly not deliver a definitive answer to long term issues in Greece and there is still a chance that an uncertain outcome could worsen Greece’s situation.