Europe: Greece
Government formation process ends in failure as debt-ridden Greece prepares for a return to the polls only a month after inconclusive elections
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Primer on 2012 Elections in Greece:
(May 6, 2012)
Elections were held in the spring of 2012. At stake in the parliamentary elections of Greece were the 300 seats of the unicameral "Vouli ton Ellinon" (Parliament). The inconclusive outcome led to three attempts by various parties to form a coalition government; those coalition building moves ended in failure and set the path for fresh elections only a month after the last polls.
Background --
An ongoing debt crisis has plagued Greece, leading to the need for a rescue plan from the European Union and the International Monetary Fund, with an eye on averting sovereign default. Despite agreeing to the debt relief package and the expansion of the EFSF, though, the European Union has not been quick to agree to the release of rescue funds for Greece, as concerns have risen about that country meeting necessary conditions -- the implementation of austerity measures and reforms -- associated with the relief package.
To that end, in late October 2011, Greek Prime Minister George Papandreou initially advanced the idea of a national referendum aimed at ratifying the debt relief plan. However, with the angry and outraged Greek citizenry unlikely to ratify the plan, the prime minister ultimately withdrew the referendum idea. Prime Minister Papandreou soon resigned from office, as demanded by the opposition, making way for the formation of a national unity government.
At the start of November 2011, the office of the Greek Presidency announced that a new coalition government had been formed. Once a new prime minister was named, President Papoulias would prevail on all parties to join the new government. Ultimately, it was former Deputy President of the European Central Bank Lukas Papademos who was tapped to be the interim leader of the new transitional Greek administration. With academic gravitas as an economist who has written extensively about the debt crisis as well as macroeconomic theory, the structure and functioning of financial markets, monetary analysis and policy, economic performance, financial stability, and economic policy in the European Union, Papademos was regarded as a credible choice to guide the interim "national salvation" government. Papdemos' background at the helm of the European Central Bank augured the possibility of a cooperative relationship with the European Union and the International Monetary Fund during this time of crisis.
It was hoped that the concurrence on the new interim government would bring an end to the climate of turmoil and uncertainty gripping Greece and the overall euro zone. As noted above, the new government would be tasked with implementing the full slate of required procedures needed to stabilize the Greek economy. It would also have to facilitate the release of the next installment of European Union / International Monetary Fund loan funds, including the passage of legislation associated with the rescue package. Before that could take place, Greece would have to have its economic affairs in order since the country would run out of money by December 2011, this risking default. All eyes were on the spring of 2012 for a likely election timetable.
Latest Developments --
On March 19, 2012, Greek Finance Minister Evangelos Venizelos resigned from his cabinet post to take over the leadership of the ruling Greece's Panhellenic Socialist Movement (PASOK) in its campaign for the general elections to be held in late April or early May 2012. Outgoing PASOK President George Papandreou expressed hopes for a new beginning, saying: "This is a new start for both of us ... We will continue to work together for the sake of the country."
It should be noted that the major parties participating in the ruling coalition were posting dismal approval ratings ahead of the elections, but all expectations were that the new government would also involve a coalition of various parties.
As March 2012 came to a close, polling data from the Kathimerini newspaper showed the conservative New Democracy party, which supports the outgoing technocratic government as well as its harsh austerity and structural reform measures, in the lead with 22.5 percent. The socialist PASOK, which was also in the outgoing coalition, followed in second place with 15.5 percent of the vote. The communists and the Leftist SYRIZA were posting about 12 percent of support respectively, while the newly formed Democratic Left, Independent Greeks, the Greek Ecologist Greens, and the far-right neo-Nazi "Golden Dawn" were all trailing behind, but were expected to gain parliamentary representation.
Together, the two main parties -- the conservative New Democracy party and the socialist PASOK -- could collectively secure enough votes to meet the 38 percent threshold required to obtain a parliamentary majority, thus ratifying their coalition for a new term in office. Still, a larger contingent of voters -- 48 percent -- would prefer a left-wing coalition that would oppose the austerity and structural reform agenda.
Note that in April 2012, Prime Minister Lucas Papademos announced that elections would be held on May 6, 2012, and called on President Karolos Papoulias to dissolve parliament. With his technocratic government set to end, Prime Minister Papedemos said he believed his government left behind "an important legacy." He also urged cabinet ministers and political parties to prevail in their efforts to overcome the debt crisis, and cautioned that any future administration would "have to make decisions promptly in order to complete the efforts to revive our economy."
Greece's two main parties -- the conservative New Democracy party and the socialist PASOK -- were expected to capture the lion's share of the vote. The main question was whether the two parties -- which support the reform agenda -- could garner the 38 percent threshold necessary to secure a majority in the 300-member parliamentary chamber. There was also some indication that left-wing and right-wing parties, which have been opposed to the unpopular austerity measures associated with the bailout funds, could make significant gains. The leftist SYRIZA coalition, the Democratic Left, the Greek Communist Party, the new Rightist Independent Greeks, and the far-right Golden Dawn could well post historic performances at the polls, given the Greek public's outrage over the austerity programs being put into place. Of course, electoral success for anti-austerity parties could threaten the rescue funding structure currently in place, risk disorderly default for Greece, and thus imperil the entire euro zone.
In the week ahead of the vote, PASOK leader Evangelos Venizelos promised to lead the country out of its debt crisis by 2015, it the party was elected in the upcoming elections. Antonis Samaras, the head of the conservative New Democracy (ND), made the same election promise. Polling data at the close of April 2012 gave Samaras and the ND the edge, although neither party was likely to have enough seats to command a parliamentary majority. Accordingly, a new coalition was likely in the offing.
Results:
As the votes were being counted, it was clear that the two main governing parties of Greece were suffering significant losses. Samaras' conservative New Democracy party was leading the country's general elections by a narrow margin with 19 percent of vote share. Center-left PASOK had slipped to third place with just over 13 percent. Left-wing Syriza was boosted to second place with close to 17 percent. The right-wing Independent Greeks secured ten percent while the neo-Nazi Golden Dawn managed to garner seven percent and could be positioned to enter parliament for the first time.
The result suggested that the coalition -- composed of New Democracy and PASOK, which formed the outgoing pro-austerity and reform government -- would not command a majority in parliament. The result also showed the ascendancy of SYRIZA , which has argued vociferously against austerity and reform. Indeed, this result for SYRIZA and even Golden Dawn was illustrative of the impassioned anger by the Greek people against the harsh measures, which were imposed in conjunction with the international rescue packages, in order to prevent Greece from defaulting on its debt.
Government Formation:
Having won the plurality of the vote share, Samaras and New Democracy would have the first opportunity to try to form a government. To that end, Samaras said he would form a national salvation government, aimed at keeping Greece in the euro zone. He also said he would try to "amend" Greece's bailout agreement with the European Union and the International Monetary Fund in order to increase economic growth. But if Samaras fails to be able to form a government after a three day period, then SYRIZA would have three days to form a coalition government. To that end, SYRIZA leader, Alexis Tsipras, said he wanted to form a left-wing coalition that would set aside arrangements related to the Greek bailout scheme. Tspiras said that the vote made it clear that the Greek party had rejected the path of rescue plans and reform. He explained, "The parties that signed the memorandum (with the EU and the IMF) are now a minority. The public verdict has de-legitimized them." PASOK would have its own chance to form a government if Syriza's effort ended in failure after three days. For his part, Venizelos called for a broad coalition or unity government including pro-European parties.
The government formation process promised to be difficult since New Democracy and PASOK would likely search for pro-euro zone partners, and those options were limited. Meanwhile, the likes of SYRIZA sought to step away from the euro zone-endorsed rescue package and reforms -- stances that both New Democracy and PASOK do not support. Thus, the path toward a viable new coalition was limited. Should all of the three successive efforts on government formation failed, then Greeks would have to return to the polls in another election. In this way, the scene in Greece after the May 6, 2012 was one of turmoil and turbulence. Indeed, without a stable government willing to adhere to the arrangement forged with the European Union and the International Monetary Fund, Greece would not have access to rescue funds. This would return Greece to its prevailing risk of defaulting and possibly exiting the euro zone.
Note that on May 7, 2012, after one day of serious government formation negotiations, Samaras, the leader of the conservative New Democracy Party, said he was not able to forge a workable coalition and that he returned the government formation mandate to President Karolos Papoulias. "We did everything we could," said Samaras. "It was impossible. I handed back the mandate." Although parties actually have three days to try to form a government, Samaras said that he did not want to waste any time, given the dire situation for Greece.
The leftist bloc, SYRIZA , would now be charged with the mandate of trying to form a ruling coalition. Speaking of his task, SYRIZA leader, Tsipras, said: "We will exhaust all possibilities to reach an understanding, primarily with the forces of the left." But Tsipras then followed in the footsteps of New Democracy and failed to form a ruling coalition. For the Syriza leader, it was imperative that his party not compromise its anti-austerity stance. "The bailout austerity has already been denounced by the Greek people with its vote, and no government has the right to enforce it," Tsipras said.
The charge for forging a workable coalition then fell on the Socialist leader, Venizelos. That effort likewise resulted in a similar manner. PASOK was able to close ranks with New Democracy but unable to find a third coalition partner. Accordingly, Venizelos formally returned the mandate to the president.
Such an end had been highly anticipated as the combination of seats for certain parties with corresponding ideologies simply did not add up to a workable result. Stated in plain terms, SYRIZA had firmly rejected the terms of the EU-IMF bailout plan, which required the implementation of harsh austerity measures and structural reforms in return for loan funding. Without the participation of SYRIZA , however, it was unlikely any coalition could be forged. Meanwhile, as explained here, SYRIZA was itself unable to form a workable alliance without one of the two pro-bailout parties -- New Democracy and PASOK. The result was a political impasse.
President Karolos Papoulias convened emergency meetings on May 13, 2012 with an eye on forming some sort of unity government, of a technocratic variety. The president invited the the three largest parties -- center-right New Democracy, socialist PASOK, and the far-left bloc SYRIZA -- for talks. That move was not welcomed by the Greek populace who did not look kindly on the outgoing technocratic government of Papademos; they viewed it as not democratically-elected and responsible for ushering in the dark age of structural economic reform. Ultimately, with the parties divided over the key issue of austerity, the last-ditch effort by the president to form a unity technocratic government ended in failure. Indeed, SYRIZA reiterated its uncompromising stance that it would not join any ruling coalition that instituted further cuts or harsh measures.
Future Course:
As of mid-May 2012, with efforts at either forming a governing coalition or a new technocratic government ending without resolution, Greek voters would be returning to the polls, possibly as soon as June 2012. There were strong indications that a new vote could end with SYRIZA winning a plurality of the vote share, possible paving the way for a government willing to walk away from the aforementioned EU-IMF bailout plan.
Of course, such a course would augur default, act as a catalyst for the possible exit of Greece from the euro zone, and facilitate a return to the drachma. The consequences for Greece -- and Europe at large -- could be dire, as predicted by Germany. The head of Germany's central bank, Jens Weidmann, warned: "For Greece the consequences would be much more grave than for the rest of the euro zone." He continued, "If Athens does not stand by its word, then that's a democratic decision. The result is that there is no more basis for further financial aid."
Meanwhile, credits ratings agencies were predicting that Greece's exit from the euro zone would affect all the remaining euro zone countries. Specifically, the Fitch ratings agency warned that if Greece abandoned the euro, not only would Greece would be deleteriously affected, but all the sovereign ratings of all the 16 remaining euro zone countries would be placed on negative watch in anticipation of downgrade.
Ratings aside, the exit of Greece from the euro zone would also land a blow on the entire framework of Europe's monetary union. Although Jean-Claude Juncker -- the prime minister of Luxembourg and the head of the euro zone -- dismissed the notion of Greece's withdrawal from the bloc as "nonsense," the fact that such a prospect was now being openly debated in Europe illuminated the devolution into further crisis and turmoil.
According to a report by the Wall Street Journal, fear and doubt about the economic landscape in Greece led to the withdrawal of close to $900 million from local banks by Greek depositors on May 14, 2012 alone. The withdrawal of funds was confirmed by President Papoulias who said the withdrawals, in conjunction with "buy orders" received by Greek banks for German bonds, placed Greece's lenders in a difficult position and that the banks were "very weak right now." $900 billion in one day was clearly a concerning event since outflows in the last two years have amounted to between one and two billion on a monthly basis.
Note: A caretaker government was expected to be formed on May 16, 2012 with elections set to be held in mid-June 2012.
Written by Dr. Denise Youngblood Coleman,
Editor in Chief, www.countrywatch.com
Houston, Texas
May 15, 2012
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THE FEATURED COUNTRY IS WRITTEN BY DR. DENISE YOUNGBLOOD COLEMAN, EDITOR IN CHIEF, WWW.COUNTRYWATCH.COM
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