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Posted by on May 13, 2012 in At TMV, Economy, International, Politics | 1 comment

Political Meltdown in Greece: New Elections Increasingly Likely (UPDATED)

Paresh Nath, The Khaleej Times, UAE

First Greece had its economic meltdown. And now it seems as if its heading towards a political melt down that will culminate in new elections:

Greek politicians traded insults and accusations Sunday following an effort by President Karolos Papoulias to broker a coalition government, increasing the possibility of new elections in the debt-stricken country.

Papoulias called together the leaders of the three biggest parties on Sunday, a week after indecisive elections and three failed attempts to form a government.

After the meeting, the leader of the radical leftist Syriza coalition said other parties wanted Syriza to be their “partners in crime,” adding: “We can’t do that.”

Syriza leader Alexis Tsipras suggested the two other largest parties, New Democracy and PASOK, were going to form a coalition with a smaller group, the Democratic Left.

But the Democratic Left issued a statement calling Tsipras’s remarks “a disgrace,” and accusing him of lying and slandering the smaller party.

This isn’t good news for Europe which has been undergoing a general financial and political upheaval:

Europe is keeping a nervous eye on Greece, fearing that the political chaos there could lead to defaults on debt that could threaten the future of the euro. Greek failure — or refusal — to make debt payments could hurt banks across Europe.

If no government can be cobbled together by May 17, new elections must be called. They would take place next month.

The Guardian:

Far from revealing that Greeks want to exit the euro, the election results send out a clear signal that the policy framework imposed since the crisis began has been wrong and needs to be rethought.

The majority of the electorate supported parties that would prefer to keep Greece in Europe, while delivering a strong rebuke to the two traditional parties of government, New Democracy and Pasok, for having brought Greece to bankruptcy and then being associated with the “austerity memorandum” – the terms of the troika bailout packages.

Opinion polls show that 70% of Greeks want to remain part of the eurozone. Only the parties of the extreme left and right want it to exit. Four-fifths voted for parties that would prefer to keep Greece in, although their views on the price to be paid to achieve that goal differ.

It is not in the interests of either Greece or the rest of the eurozone to reinstate the drachma. An exit from the euro would lead to a run on the banks and the collapse of the Greek banking system. If Greece was shut out of international money markets, the temptation would be to meet the government deficit through printing money, leading to rapid inflation. People’s savings would be wiped out. And an effective devaluation might do little for Greece’s balance of payments anyway, except possibly through tourism. Poverty would become increasingly widespread.

A Greek exit would also damage Europe’s fragile growth prospects. The “contagion” everybody has been warning about would get worse because Greece would not leave the euro without also walking away from its debt obligations. Banks exposed to Greece would suffer massive losses and the potential damage to the trust that the banking system relies on could lead to another credit crunch. The markets would then focus on the next country likely to go down the same route and make it prohibitively expensive for it to borrow. This would add to the pressures already faced by other euro members. Ultimately, the UK would suffer as the eurozone is its largest export market.

So Greece leaving the euro is not the solution.

Greece could be broke in six weeks:

GREECE’S Deputy Prime Minister has warned his country will run out of money in six weeks unless it honours its bitterly disputed EU bailout deal.

Speaking to London’s The Sunday Telegraph, Theodoros Pangalos said he was ”very much afraid of what is going to happen” after Greek voters rejected the deal in recent elections. ”The majority of the people voted for a very strange mental construction,” he said. ”We want to be in the EU and the euro, but we don’t want to pay anything for the past.”

The main beneficiary of the election, the hard-left Syriza coalition, came a startling second on a promise to tear up the deal, which promises EU loans to keep the massively indebted country afloat, but demands crippling spending cuts in return. Germany, the principal lender, has said it will stop payments if Greece breaks its promises on spending.

Mr Pangalos warned: ”There is a school of thought that says the Germans are bluffing, and that they need Greece and will never throw us out of the eurozone. But what will happen … is they will not give us the money to pay our debts.

”We will be in wild bankruptcy, out-of-control bankruptcy. The state will not be able to pay salaries and pensions. This is not recognised by the citizens. We have until June before we run out of money.

”We have been spending the future for half a century. What [the anti-bailout forces] are asking from the EU is not just to pay our bills, but to pay for the deficit we are still creating.

”I’m sure the Germans don’t want Greece to leave the euro. What I don’t know is how much they’re willing to pay. It depends on the German man on the street. Is he willing to pay his taxes to save Greece? I doubt it.”

The political outlook looks bleak, indeed:

After each of the top three parties at the election failed to form a government, Greece’s president, Karolos Papoulias, was overnight holding last-ditch talks to try to cobble together a national unity coalition. The alternative is a fresh election next month, which polls show Syriza would be likely to win.

Mr Pangalos compared Syriza’s charismatic leader, Alexis Tsipras, with Venezuela’s Hugo Chavez. ”Are the Germans going to pay for a guy that wants to imitate Chavez?” he said. ”Except that Chavez has oil – and an army.”

Mr Pangalos warned chaos might boost the neo-fascist Golden Dawn party, which won an unprecedented 7 per cent of the vote, and 21 seats.

Here’s a video about this new political crisis and its implications.

UPDATE: New York Times:

State television reported on Sunday that the talks would continue on Monday, indicating that there remained some hope of a breakthrough.

President Karolos Papoulias was meeting with the leaders of several smaller parties Sunday night to persuade them to join a two-year coalition with the Socialist Pasok party and the center-right New Democracy Party that would uphold the loan agreement, though with a possible renegotiation of some of its terms.

If Mr. Papoulias fails to get party leaders together in a coalition that can command a majority in Parliament, he will call a new election and appoint an interim government to lead Greece until then. The date mentioned as most likely for the election is June 17.

The political wrangling once again highlights the clash in Greece between democracy and market forces. Greece’s political parties need to form a government that reflects the will of the people — who on May 6 largely voted against the loan agreement and would probably take to the streets if a new government paid them no heed — without reneging on the country’s commitments to Europe and its creditors.

European leaders have warned that if Greece does not keep its promises, Europe will stop financing it, which would quickly lead to Greece defaulting on its debts and leaving the euro zone, as the countries who share the common euro currency are known.

But Alexis Tsipras, the leader of the Coalition of the Radical Left, known as Syriza, has gained political momentum precisely by defying Europe’s threat. On Sunday, he insisted that his party would not join any unity coalition with the Socialists and New Democracy, the two major parties who were in government when the debt deal was signed. Syriza will “not be complicit in their crimes,” Mr. Tsipras said.

“Those that governed the past two years have not only failed to accept the message from the elections,” he said. “They continue their policy of blackmail.

“We call on all Greeks, not just leftists, to condemn once and for all the forces of the past, and to realize that the only hope that is still alive in this country is to unify against blackmail and stop the continuation of this barbarism.”