The Greek Tragedy Has Only Just Begun

Paul Mason, in this article, anticipated the outcome of yesterdays election in Greece. The crux of his argument is that New Democracy would win and stabilise Greece for a few months. But the reality remains – Greece is insolvent and incapable of recovering under the Troika adjustment program. Whilst New Democracy pursue the ECB-IMF agenda, SYRIZA will lead the opposition, gather public support and romp home in the next election – which could happen as early as next year. The bottom line is that the Greek tragedy is far from over. There are many more twists to this tale.

The conservative New Democracy party took 29.5 percent of the votes, and given Greek electoral rules, will take 128 seats in the 300 seat parliament. The broad left-coalition, Syriza, won 27.1 percent of the votes, which translates into 72 seats. Pasok, the social democrats, won 12.3 percent of the vote, translating into 33 seats. The Democratic left won 6.2 percent of the vote, or 17 seats. Hence, New Democracy are likely to try forge a national coalition with PASOK and the Democratic Left. A core part of this coalition will be to retain the Euro and continue with the Troika adjustment program.

Does this mean that Greece will remain in the Euro, and the problems of the Eurozone solved? Not by any stretch of the imagination. New Democracy will try to re-negotiate the memorandum of understanding with the Troika. The best they can hope for is further debt relief. But they are not likely to tackle the real problem facing Greece and the Euro – a completely insolvent and corrupt state that has a balance of payments crisis, operating in a completely over-valued currency. The troika will grant a loan with lesser austerity conditions attached, but they will be severe none the less.

The outcome of this situation will be continued economic stagnation. The new coalition might balance the books, reduce the fiscal deficit, and offer a false signal to Europe and international markets that the Greek public finances are stable. But the social impact on employment will have a bigger influence on the electorate. New Democracy and PASOK are considered part of the problem, not the solution, by the vast majority of young Greek people. They are central to the corrupt politics that has created the fiscal crisis of the Greek state. European governments, including Germany, are all too aware of this when they negotiate with New Democracy and PASAOK.

The victory for New Democracy is a blessing in disguise for SYRIZA. They can continue to oppose the Troika, and the established political parties, with a considerable mandate in parliament. They can refine their scientific, social and political arguments, and maybe confront the real problem facing Greece – an inflexible currency union, a corrupt state and a stagnant economy. Regardless of their rhetoric, SYRIZA were never going to square the circle of refusing the conditions of a Troika loan, whilst retaining the Euro. After the next election, they might be in a better bargaining position to do this. But all of this depends on German political interests, which do not look like giving up the austerity fetish anytime soon. The real drama in Greek politics, therefore, will continue to be played out in the private corridors of the ECB and Bundestag.

So the Euro currency has become stabilised for a short period, reflected in its strengthening against the dollar this morning (which, ironically, worsens the possibility of an export recovery in Greece). But the sovereign debt crisis is still in full flare. Spanish bond yields crept above 7 percent this morning. This is what will focus the minds of Northern European elites, not the Greek elections. Hence, the fundamental political problem facing Europe remains – how to turn a currency union of seventeen diverse nation-states into a monetary-fiscal-political union, capable of equalising living standards, across a region with increasingly divergent living standards.

There is one thing we can be sure about though – we’ll all be cheering for Greece against Germany in the Euro’s next week.

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