Thursday, May 10, 2012

What Does Greece Do After An Election That Produces Disastrous Results? Have Another Election of Course

Keep Trying Until They Get it Right

Remember the old saying about the definition of insanity being repeating a set of actions exactly as before and expecting a different outcome.  The Greek nation is about to illustrate that principle by having another election for its Parliament after having just concluded an election several days ago.  Why?  Well why not.

It seems in the just completed election in Greece voters splintered the outcome, so that no party and even no coalition of parties can form a government.  So right now there is no government.

The most likely situation now is for the president, Mr. Papoulias, to appoint an interim government and call new elections in 30 days. That would lead to more instability, since Greece has a number of crucial deadlines in the coming weeks.

The problem is that the two major parties agreed to very onerous austerity policies in return for a bailout from the European community and the IMF.  These policies resulted in an increase in taxes for some, but the major impact was a huge cut in government spending and the creation of a vast amount of unemployment.  And to get the next round of help Greece has agreed to even more cuts and higher unemployment. 

In what is a surprise only to the politicians and policy makers who think Greece must be destroyed in order to save the country, voters have overwhelmingly rejected the policy, and have turned against the two main political parties.  Europe has tried to bully the Greeks, but really, who expects that to be effective.

“Greece must know that there is no alternative to agreed reforms if it wants to stay in the euro zone,” Jörg Asmussen, a member of the executive board of the European Central Bank, said Tuesday.

But as Sunday’s elections made clear, Greek voters have grown weary of such statements, which many believe are empty threats, and flocked to Syriza, which received nearly 17 percent of the vote by trying to carve out a space that is opposed to the loan agreement but in favor of Greece staying with the euro. Syriza came in second to New Democracy’s 19 percent and ahead of the Socialists’ 13 percent, both parties’ worst showing since their founding in 1974.

So now Greece is at the doorstep of a major crisis.

Still, if Greece fails to enforce the benchmark cuts and structural changes set in a second loan agreement reached in February, its lenders will withhold the next installment of aid it expects in May. Without that, it cannot pay a bond that comes due on May 17 or meet expenses past July.

And Europe will have to either blink, or allow a major default of Greek debt and a shutdown of the Greek government for lack of funds.  Since Greek debt is owned by a large number of financial institutions outside of Greece, such an outcome would devastate Europe’s already weak economy. 

So look for Europe to find a face saving way out.  As for the Greeks, exactly why anyone would expect the next election to have a different outcome than the last one is unknown.  In fact, in another election it is very reasonable to expect that the anti-austerity forces will gain even greater support.  Okay Europe, what do you do then? 

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