Greece did it again

European Council of 23-24.10.2014 in Brussels. Angela Merkel, German Federal Chancellor, Francois Hollande, President of France. This is how the European Council decides. Chancellor Merkel speaks and French President Hollande listens. (EU Council Photographic Library).

Last Monday, the Greek government scheduled an early Presidential election before the end of the year, which according to the constitution is to be held in the Parliament. If the Parliament proves unable to elect a new President of the Republic (180 votes are needed in a house of 300) a new legislative election must be held in January or early February.

This ballot though may produce a hung legislative and political confusion. In view of all that, Reuters appeared with this title: “Global shares fall on oil drop, Greek political turmoil”. In any case, the governing alliance of the centre right New Democracy party and the socialist PASOK had to face a Presidential election in March, because the current Presidential term expires then.

So, in one way or another, the collapsing global markets of crude oil and tiny Greece of 7 million voters could, during the coming months, embroil the financial world in a new tumult. As noted above, ND and PASOK need now at least 180 deputies in a house of 300 to elect a new head of state, but they command only a majority of 155. If after three votes (17, 25, 29 December) the legislative fails to elect a new President, the constitution stipulates the dissolution of the legislative and a new general election on the last Sunday of January or on 1st February.

The governing partners, Prime Minister Antonis Samaras of ND and Vice Prime Minister Evangelos Venizelos of PASOK, currently appear weak in all and every public opinion poll. The major opposition left-wing group SYRIZA heads the voting preferences with around 26%-30%, ahead of ND with 19%-23% and PASOK in the single digit region. SYRIZA though appears unable to win an absolute majority of 151 deputies to form a viable government.

Greek promises

As things stand then, Greece promises to Europe and the world at least a three-month period of uncertainty, which may even question the country’s position in or out of the Eurozone. Nevertheless, SYRIZA vows to keep Greece in the euro area by following meticulous fiscal policies with zero deficit budgets. This pledge though comes in direct contrast with the party’s populist promises to restore pensions, wages and social security grants to the pre-crisis levels.

On top of that, its young and inexperienced leader Alexis Tsipras has stated that he “will order the financial markets to dance to his tunes and not the opposite”. However, SYRIZA challenging the markets in this childish way appears unable to convince investors to finance Greece in order to pay its regularly maturing huge debts. Presently, the yield of the ten-year Greek government bond oscillates in the sovereign debt market around the prohibitive levels of 8.5% to 9%. At those rates Greece touched bankruptcy in 2010. At the same time Greece’s Eurozone official lenders (currently keeping the country afloat) are ill prepared to cooperate with Tsipras, because he categorically rejects the existing Memorandum of Understanding the country has signed with its euro area partners.

Actually there is nothing Tsipras hasn’t promised to Greek voters, following the tactics of the late Andreas Papandreou, when that old dinosaur won in 1981 his first general election. All that, plus the prospect that SYRIZA is not expected to win an absolute majority make a perfect recipe for a continuous turmoil during the next months at least in Greece and the Eurozone. Undoubtedly, the question that Brussels and Berlin have to answer during the next months will be if it can insulate Italy, Spain, Portugal and Cyprus from the Greek virus.

A Xmas gift from Athens

Let’s now try to anticipate what the Xmas and New Year festivities will look like in Europe. The first reactions vis-à-vis the early Presidential election came from Germany. Surprisingly enough, the German Minister of Finance Wolfgang Schäuble commented that this “Samaras’s decision was a good one” and praised the Greek government for its efforts to consolidate the economy. In this way Berlin seems to recognise that Samaras didn’t have other options, given the intransigence of Tsipras, who monotonously demanded for months a general election and maintained that this Parliament should not and cannot elect a new head of state. The usually reserved Schäuble also added that by the end of February Greece may count on a new financial instrument, without Eurozone needing to put in extra money.

Mind you this is a possibility not a decision. What he means here is that a large part (to the tune of €11.5 billion) of the financing destined for the recapitalisation of the Greek banks (totalling around €50bn), was not used and remains available to cover other financial needs. It’s like the German politician telling everybody and primarily the markets, that Greece won’t run a danger to go bankrupt, at least not during the next few months. Obviously he rushes to forestall a possible new financial crisis in Eurozone. Understandably, this help-line for Athens will go together with new obligations. Actually, it will extend the pledges to restructure the economy that Greece has already signed but never delivered.

All is politics

At this point, it has to be noted that last Monday, only some hours before Samaras announced his decision about the early election, Greece had secured in Brussels a Eurogroup decision, providing a two month extension (until end February) of the present aid scheme, which expires at the end of the year. After this two month period, as Schäuble noted, Greece may sign with Eurozone a new aid agreement (with a dowry of €11.5bn), of course containing similar conditions as those included in the present and the previous Memorandums of Understanding. It is clear then that, whatever the outcome of the elections, Eurozone will ask Greece towards the end of February to comply with the rules.

It must be reminded that in 2010 and 2012 Greece has signed two successive agreements (Memorandums of Understanding) with the Troika of its lenders the European Commission, the European Central Bank and the International Monetary Fund. In Greece the word ‘memorandum’ (mnimonio) has acquired an odious connotation and consecutive governments quickly saw their electoral base disappear, after signing and even partially applying those agreements. The once mighty PASOK, governing or participating in the governments all along the difficult period of 2009 – 2014 is now struggling in the single digit area of poll percentages.

Under pressure

The good news is that the Greek economy, helped by its booming tourist sector, has now entered a growth path after six years of deep recession and a catastrophic loss of one-quarter of GDP. Actually, the current growth rate is the largest in Eurozone and expected to reach a remarkable 2.9% next year. This expectation together with Schäuble’s statement about a new and softer help line would give Samaras a base to revive his narrative about a ‘success story’. Unfortunately, all along the election period in December and January, Greek values would have a hard time in all markets.

The Athens stock exchange lost almost 13% in one day, last Tuesday. The same disastrous developments were recorded in the Greek sovereign bond market, with further losses. Presumably similar conditions will continue until a viable political arrangement is achieved. Presumably, in this calamitous financial environment, the promises of Tsipras for greener grass would look rather untrustworthy, if not dishonest, while Samaras would try to appear more reliable. In short, this may be the plan drawn up by the pair of Samaras-Venizelos in cooperation with Berlin.

The two month extension of the present financial aid scheme (accorded by the Eurogroup on Monday under the guidance of Berlin) to see Greece until the most likely next general election, plus the German promise for a new and possibly less onerous regime for a financial backing thereafter, constitute the best base for Samaras’s narrative in confronting Tsipras’s mythical promises in the ballots. In this way, Samaras may even try to turn the election into a referendum of in or out Eurozone, denouncing the SYRIZA vote as a vote for bankruptcy and a Grexit from Eurozone.