Monday, May 7, 2012

France Chooses Socialist Francois Hollande to Replace Center/Right President Nicolas Sarkozy – But The Real Story is Greece

Greece – A Much Smaller Country Than France – A Much Bigger European Problem

As expected, Socialist candidate Francois Hollande defeated incumbent French President Nicolas Sarkozy, and as expected the margin will probably be about three to four percentage points.  Mr. Sarkozy was done in by two major problems.  The first problem was Mr. Sarkozy, who when he took office five years ago acted in such an arrogant and offensive manner that he turned away the voters who never came back to him.

The second problem for Mr. Sarkozy was that Marine Le Pen, the head of a far right nationalist party whose supporters Mr. Sarkozy tried to co-opt refused to cooperate.  She recognized that her party and her future prospects were better with a socialist in charge, someone she could fulminate against.  It’s sort of like Rush Limbaugh being better served by a Democrat in the White House than if a Republican were there.  (Mr. Limbaugh’s worst nightmare is a Romney win.  He would either have to support a person with which he would have profound political disagreements, or spend four years attacking a Republican President).

But the real news of the day is the collapse of unity in Greece, demonstrated by an election for the Parliament which shattered the ruling coalition and has left the country in a state of near anarchy.

Greek voters Sunday delivered a stinging rejection of the country's two incumbent parties—the Socialist, or Pasok, party and the conservative New Democracy party—and the austerity program they support, raising the specter of political instability that could ultimately challenge the country's future in the euro zone.

With the country's political landscape dramatically recast as many voters backed smaller, anti-austerity parties from the left and right, difficult talks for a multiparty coalition were set to follow the election of Greece's most fragmented Parliament since the restoration of democracy and fall of Greece's military junta in 1974.

The reason why this is a problem is that Greece must enact a series of rather nasty economic austerity programs, the core of which is huge cuts in government services and employment in order to meet the conditions of the bailout which the government has agreed to.  But the new legislature may not enact that program.

But facing a raucous opposition of extreme left and right-wing parties —ranging from Marxist-Leninists to anti-immigrant ultranationalists—opposed to Greece's austerity program, it's not clear that the incumbent Socialist and Conservative parties will have the political muscle to implement the reform programs they backed as part of a coalition government.

"Greece is facing, for the first time in its post-war history, a double crisis: a political crisis and an economic crisis at the same time. This is a recipe for chaos that the country has never faced before," said Anthony Livanios, a political risk consultant. "I'm worried that Greece has started down the path of exiting from the euro zone."

Amid signs of strong turnout, voters indicated their shift toward leftist or extremist parties that have opposed the combination of spending cuts and tax increases prescribed by Greece's international lenders.

So there are three possible outcomes here.

  1. Greece enacts the cuts in spending and increases in taxes demanded by Europe as the price for the bailout.  Economic conditions deteriorate even further and social unrest becomes widespread.

  1.  Greece does not enact the austerity program, and Europe withdraws its bailout.  Economic conditions deteriorate even further and social unrest becomes widespread.

  1. Greece does not enact the austerity program and Europe allows the bailout to remain in place.  This causes Italy, Spain and Portugal to reject their austerity programs.  Political chaos engulfs Europe.

Could we please have another menu, no one likes the choices on this one. 

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