Eurozone: Avoiding a new Greek accident

European Council Meeting, 22/05/2013. Enrico Letta, Italian Prime Minister, Antonis Samaras, Greek Prime Minister (from left to right). (Council of the European Union photographic library).

European Council Meeting, 22/05/2013. Enrico Letta, Italian Prime Minister, Antonis Samaras, Greek Prime Minister (from left to right). (Council of the European Union photographic library).

The withdrawal yesterday night of the junior partner, the DHMAR (Democratic Left) political party from the Greek tripartite government coalition poses again the effectiveness problem of the overall economic strategy Eurozone applies to counter its sovereign debt sustainability problem and exit a two years old recession. The obstacles are political, social and also of economic soundness.

DHMAR objected the shutdown and the laying off of the entire personne in the state television ERT and opposed the creation of a small public broadcaster. The tripartite government during the last twelve months tried to apply or pretended it is applying to the letter, an austerity programme, the second in a row, imposed by the troika of European Commission, the European Central Bank and the International Monetary Fund.

Uneasy partners

At this point it must be mentioned that after the June 2012 double Greek elections the first party, the centre-right New Democracy under its leader and Prime Minister Antonis Samaras, didn’t win an absolute majority. In view of that, Samaras managed to form a right to left coalition of three parties, New Democracy, DHMAR, plus the socialist PASOK thus securing a large parliamentary majority.

Now the exit of DHMAR from the coalition leaves the New Democracy – PASOK government with a poorer parliamentary showing of 153 deputies, plus some independents who may accord their support to Samaras in a house of 300. The option of an early election is out of question. The currently applied austerity programme is drafted by the troika of EC-ECB-IMF which provides also the necessary soft loans to keep the Greek state going, doesn’t leave room for elections despite it proved to be grossly wrong,

Actually Greece expects a badly needed loan of €8 billion in July. This credit though will be released only if the troika’s auditors find that the country applies correctly the austerity programme, the fiscal targets are met, the public sector lays off 2000 workers this month and the privatisations schedule is on truck.

Late yesterday night Prime Minister Antonis Samaras in a TV address accused DHMAR leader Fotis Kouvelis of reneging from what the three government partners had agreed, over the shutdown of the costly and overstaffed public television ERT. Samaras confirmed that PASOK remains in the coalition and consequently the government retains a parliamentary majority of at least 153 deputies in the legislature of 300.

A long night

The Greek PM in his extraordinary yesterday night address repeatedly confirmed that the country is not going for an early election and confirmed that the government is determined to exhaust its constitutional four-year term until June 2016. Earlier during the week, when the disagreement over the ERT rattled the government, Brussels and other EU capitals appeared worried. The prospect of Greece holding an early election could have created a dark point in the efforts of Eurozone to regain confidence and exit its two years old recession.

The IMF in view of the political problems in Greece clearly stated earlier this week, that the Fund will withhold its share from the next soft loan instalment to Athens, expected to be paid in July, if the troika’s auditing is not completed and produce positive results within the next few weeks. Now in case Greece held an election the auditing couldn’t be accomplished and the IMF would have practically withdrawn from the troika.

This development could have diluted the wider cooperation between Eurozone and  IMF, in resolving the euro area’s sovereign indebtedness problem. Such an eventuality could have been the end of the already unease partnership between Europe and the Fund. The German minister of Finance, Wolfgang Schaeuble, had recently stated that the Europeans must agree to take care of their own affairs without the help of the IMF.

Avoiding elections

It seems that the many Greek political and economic crises of the past three years have posed every time a totally new problem for the European Union. Greece was the first Eurozone member state to ask for financial support to avoid bankruptcy. Then Athens proved unable to apply the first Memorandum of Understanding it signed with the troika of its creditors EC-ECB-IMF.In between the two memorandums Greece was the first country where the policies and the programmes of the troika proved to be largely wrong, causing a much deeper recession than predicted.

Yesterday again Greece came close to be the catalyst of a possible disruption of relations between the European Union and the IMF. Given also that the Fund reflects in many respects the US position on crucial issues, a new Greek tragedy could have shaken also the EU-US relations. The financial and political repercussions of this eventuality could have been huge.

To avoid all that, and primarily to save his country from a new period of turmoil the Greek Prime Minister Antonis Samaras reassured yesterday night everybody, within and without his country, that he is determined to exhaust the government’s constitutional term before calling a new election. Surely he will try that, the question is if he can to it.

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