Pedestrians are reflected in a poster advertising the Greek national elections, on the day of voting in Athens. -Simon Dawson/Bloomberg
The election of Socialist Party leader François Hollande and serious loses in the coalition parties (New Democracy and Pasok) in the current Greek government are sending shockwaves throughout Europe. Whatever challenges the Euro has faced up to this point, they pale in comparison to what the future holds.
The Telegraph has a good initial take on the events:
The economic doctrine of austerity, to cut the burden of state spending to free up the economy, has ruled supreme with the support all of Europe’s leaders, the European Union and financial markets.
But political leaders were on Sunday night conceding the consensus had been shattered beyond repair.
With Europe’s economies plunging further into recession and as unemployment in the eurozone breaks record levels, voters demands for a new approach had finally become to great to ignore.
The popular backlash to EU imposed austerity to the centrist New Democracy and Socialist parties in Greece threatens the existence of the euro itself.
Greece is potentially ungovernable as a minority government must try and pass a new raft of austerity measures next month which are a condition of an EU-IMF bailout and Greek membership of the euro.
In France, while Hollande, the Socialist President-elect is a centrist, he is sitting on a powder keg of resentment at measures that his government will have to pass if it is not spark a meltdown of financial markets.
He has refused to ratify the treaty unless the eurozone and EU also sign up to a “growth pact”.
And as a footnote, despite Chancellor’s Merkel’s popularity in Germany, it appears that her coalition government suffered a lose in the state of Schleswig-Holstein.
France may muddle through - François Mitterrand came to power in 1981 and after a brief move to the left (inviting the Communist Party into his government) was forced by pressures from the international markets and domestic politics to move to the right. But Greece is in a fundamentally different situation with a negotiated $171 billion dollar agreement with the EU that ostensibly cannot be revoked by the new post-election government.
Problem is – the current coalition parties, New Democracy and Pasok, may have received no more than 34% of the total votes and Syriza, the Coalition of the Radical Left party – which is pushing for an end to the austerity measures – may get as much as 17%. Syriza is looking to form it’s own coalition based on an end to the austerity measures and if the current coalition collapses, the shockwaves will hit the global financial markets. As the Washington Post remarked:
The vote was a stunning repudiation of the two political parties that have ruled Greece since the end of dictatorship here nearly 40 years ago. The pro-business New Democracy Party and the Socialists have traded power for decades. Now, a cacophony of new, skeptical voices will crowd the halls of parliament — including a far-right party called Golden Dawn, whose supporters celebrated Sunday night with flaming torches and the Nazi salute.
Yes, you read that right – Nazi salutes. And Golden Dawn will enter Parliament for the first time.
Members of the Greek neo-Nazi Golden Dawn Party celebrate in Thessaloniki on Sunday.
A scary development, but in all honesty, while the press here – elsewhere – speaks of a “downturn” or a “recession” in Greece, Spain, Portugal, etc., the unemployment numbers and business statistics indicate that this is essentially an economic depression (in Greece, unemployment has reached 21 percent and GDP has declined by 20 percent in just two years). People are tired of sacrifice that seems to only call for more of the same, and the result will be a resurgence of radical parties on both the left and the right. With all the debate about bailout packages, deadlines and who should pay, the leaders at the center of the crisis have forgotten that people need hope. The austerity measures are clearly not providing it, which will lead people into the arms of those with much more radical solutions.
Greece has reached a breaking point. And the political decisions ahead may well reverberate throughout Europe.
default on its obligations. I’ll confess I was wrong on this one as I thought it would not make it through (particularly the second round of voting on the specific cuts and tax increases). Greece is not out of the woods yet, and the banks may need to rollover a significant amount of debt, but the passage will allow the EU to release the funds. So there is a little bit of breathing room and the markets have remained calm.
