A Moment’s Respite in Europe

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As I type about 75% of the vote in the second Greek election in a month has been counted and the leaderboard looks like this.

So it would appear that New Democracy will win approximately 130 seats of the 300 available and therefore technically be able to form a ruling coalition with any of the other top 4. I say “techinically” because there are already reports out of Greece that their previous coalition partner PASOK has stated it won’t form a coalition with New Democracy unless SYRIZA comes on board as well. SYRIZA has already ruled this out stating it will stay in Opposition. This suggest that PASOK officials are concerned that New Democracy will be quickly ousted from parliament due to undeliverable promises leaving SYRIZA in a position to cement its power come a new election. In other words, PASOK appears to want everyone to drink from the same poison chalice because it doesn’t want to be caught on the wrong team if/when the new government fails.

Now there’s confidence ! But I guess I can understand the political dilemma.

Even though New Democracy appears to be the less extreme option it wasn’t long ago that Antonis Samaras was the bad guy of Greece and the post-election statements from the German foreign minister are a stark reminder of the road ahead:

German Foreign Minister Guido Westerwelle signaled on Sunday that Greece could get small concessions from the euro zone over its painful bailout programme but nothing like a full renegotiation.

“There can’t be substantial changes to the agreements but I can imagine that we would talk about the time axes once again, given that in reality there was political standstill in Greece because of the elections, which the normal citizens shouldn’t have to suffer from,” Westerwelle said on German TV station ARD.

“But there is no way out of the reforms. Greece must stick to what has been agreed. If we said to Greece, no matter what we agreed, it doesn’t matter anymore, then we would get a problem with all the other European countries that are diligently and persistently implementing their reforms.

Although in comparison to SYRIZA New Democracy is seen as a pro-austerity party their political campaign was based on re-negotiating the terms of the bailout. This included not only extending the period of fiscal adjustment, but also slowing down the rate of public spending cuts, extending unemployment benefits, retaining more staff in public organisations and reducing taxes. Given the stance of Europe these promises would appear completely undeliverable and likely to give any opposition a very easy target.

Either way a win by New Democracy is sure to be seen as short-term positive as it negates the immediate existential explosion of the Eurozone, but it changes very little in the medium or long term. The focus of the crisis has moved on from Greece to Italy and Spain, and although I have been saying for a very long time that the economic policies directed towards Greece are utter delusion it isn’t the outcome of this election that is going to change them. The centre of the crisis has now moved west of Greece and a New Democracy win may in fact be further bad news for the other weaker economies because it takes some pressure off Europe to provide a more immediate resolution to Spain.

So good news today but same old news tomorrow I suspect. But lets wait and see if we actually get a working parliament in Greece before stepping too far forward.

The Greek election wasn’t the only show in town over the weekend. The French were at it as well:

French President Francois Hollande’s Socialists won an absolute parliamentary majority on Sunday, strengthening his hand as he presses Germany to support debt-laden euro zone states hit by austerity cuts and ailing banks.

The Socialist bloc secured between 296 and 320 seats in the parliamentary election runoff, according to reliable projections from a partial vote count, comfortably more than the 289 needed for a majority in the 577-seat National Assembly.

The result means Hollande won’t need to rely on the environmentalist Greens, projected to win 20 seats, or the Communist-dominated Left Front, likely to have just 10 deputies, to pass laws. The centre-left already controls the upper house of parliament, the Senate.

This victory should allow Francois Hollande to have explicit parliamentary control as he tries to steer Germany onto a more growth orientated path for Europe. That is most certainly the message he’ll be taking to the G20 in Mexico this week.

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  1. Maju

    “In other words, PASOK appears to want everyone to drink from the same poison chalice because it doesn’t want to be caught on the wrong team if/when the new government fails”.

    PASOK is a dead man walking, Venizelos knows it (it is HIS fault mainly) and is trying to minimize the damage again with some political posturing.

    It may have to do with including DIMAR in the coalition however (it was the case with the equivalent posturing in May), and this may be important. ND+PASOK=152 seats, just two seats within the majority zone of 151 or more. For that reason PASOK (and maybe ND) would want to have someone else and the only one dubious enough re. the Memorandum still in parliament is DIMAR and their 17 seats. All the other parties have run on programs frontally oppossed to the Memorandum.

    DIMAR in the May mini-negotiations wanted also a Great Coalition in which the presence of SYRIZA would offset the rightwing domination of ND. But SYRIZA stood their ground and will again now. So I think it’s all posturing but still the support or not of DIMAR may make a big difference: in the short term for the apparent stability of the Papademos II government and in the mid term for the survival or not of both PASOK and, specially, DIMAR. If DIMAR joins, it may save the government but it will probably sign their own death sentence. I still think they will and that they will be absorbed by PASOK.

  2. Alan

    This win by ND is a catastrophe for Greece and the EZ. Leave aside the fact that it is part of the old, corrupted guard that will not kill the clientist model it feeds on. It also means that no meaningful change will be made to the memorandum, which may make some creditor nations feel good today but will come back to haunt them very, very soon.

    To really understand what we are talking about here, let me post some numbers to illustrate the depths of the Greek depression. The country is poised to break another world record (post WWII, western nations) this year, which will be added to the other three it has already broken:

    1) Years of recession: Five, with a certain sixth next year.
    2) Depth of recession: -23% or -24%, coming close to breaking Latvia’s record of -24%.
    3) Public expenditures cuts: Over -35% so far, an unprecedented number, which Krugman called “insane”.
    4) Deficit cut: 8%, just in the first 2 years.

    [ For comparison, look here: http://www.theatlantic.com/business/archive/2012/02/greece-is-on-pace-for-the-worst-recession-in-modern-history/253128/ ]

    Clearly, with unemployment breaking 23% this year and youth unemployment at over 50%, the insistence of the Troika to add another 14 BILLION in cuts this year and fire 150.000 public employees is totally insane, and that would be an understatement. I mean, words fail me to describe such a stupid and utterly immoral insistence on such a recipe. Add to this that with the society melting and with a nazi party already winning 7% of the vote, needed reforms will be much more difficult to implement.

    What we are witnessing is a social experiment of how much a nation can take before it breaks down completely. This, the European elite is calling solidarity.

    Looking at these numbers, and with the Troika insisting on moving forward with the same policies, within less than a year the ND-led coalition will collapse and Greece will have to exit the EZ. With talk of Spain now needing “internal devaluation” while the unemployment rate is already at 24-25% and youth unemployment over 52% (those are the official numbers), Spain is walking on Greece’s footsteps.

    This is utter madness, and unless debt forgiveness enters the policy proposals really soon for the whole of the periphery, anyone dreaming that the EZ will survive with some sort of ECB printing is delusional. Unless we go the hyperinflation printing-on-steroids-route, which could work for a few more years until everyone is totally impoverished.

    This is a debt crisis, not a liquidity crisis. The reason for this is a systemic imbalances crisis. The reason why it can’t be solved is because we also have a leadership crisis, with an elite protecting financial interests and unpayable debts while openly sacrificing whole populations, even if history teaches us that debts that cannot be paid, will not be paid.

    With ND winning in Greece and the prospect of a renegotiation with debt forgiveness out of the picture, and with Spain following the same path, this lesson will soon be learnt again, the hard way.

    1. Lambert Strether

      If we have a repeat of the influenza pandemic of 1918 (with another disease, of course), that will be because austerity policies have caused the public health systems to collapse, as they are collapsing in Greece (and in a population that, exactly because of the success of public health, paradoxically lacks the immunities of less “advanced” societies; see Charles Mann’s excellent 1491). Needless to say, for the elites, that’s not a bug, but a feature. One might think of Greece as a laboratory or proving ground.

      1. Mark P.

        Something that’s long worried me too, because here we are —

        ‘Plague Rare in U.S., Surfacing in More Affluent Areas’


        ‘Although the plague is typically considered a remnant of the Middle Ages, when unsanitary conditions and rodent infestations prevailed amid the squalor of poverty, this rare but deadly disease appears to be spreading through wealthier communities in New Mexico, researchers report.

        ‘Why the plague is popping up in affluent neighborhoods isn’t completely clear, the experts added….

        ‘Plague is caused by a fast-moving bacteria, known as Yersinia pestis, that is spread through flea bites (bubonic plague) or through the air (pneumonic plague).

        The new report comes on the heels of the hospitalization on June 8 of an Oregon man in his 50s with what experts suspect is plague….’

        1. stripes

          Max Keiser pegged it a while ago when he said if they can’t fraudclose, they will probably gas us in our homes. We need to find ways to build up our immune systems.

  3. exomike

    Does any one know the level of corruption in the Greek voting system and how much of the vote could be rigged, etc.? Also, how much influence do the moneyed elite in the Eurozone have by putting massive amounts of money into the elections?

    1. Alan

      No corruption there. The elections in Greece are fair and square.

      On the second question, tough to say. There was a huge scandal in Greece a few years back when it was revealed that the two major parties (then ND and PASOK) were taking tons of cash (!) from Siemens under the table, in plastic bags. Obviously, nothing came out of the ‘investigations’. These are the parties that will now govern to change Greece by fighting corruption.

    2. Ruben

      “What we are witnessing is a social experiment of how much a nation can take before it breaks down completely.”

      I think this can be quantified by the proportion of votes that Syriza is short of to form a majority. Going by that the Greeks can still take a lot more.

      1. Alan

        Yeah, for a guy who honestly thinks that German banks offloading their risks and losses to European taxpayers is not a big deal, such cynical remarks are probably what in your social circle passes as a sense of humour.

        Ruben: “However, I’m not convinced that lending to Greece to re-pay German (and French) investors before Greece defaults (which is what has been going on in the last two years) is as morally reprehensive as the original Greek govt fabrication of the State’s deficit data.”

        Even though you found out others did the same thing. According to Goldman, it was commonplace, at least 4 more countries as a matter of fact. More here: http://econintersect.com/b2evolution/blog1.php/2012/02/16/watchdog-another-draghi-conflict-of-interest-uncovered

        Ruben: “That fabrication by Greek govt elites and the technically flawed design of the Eurozone by European elites are the ultimate causes of the current mess, not any so-called reckless creditor behavior (which was not so reckless after all since the exposure has been greatly reduced before the shit hits the fan).”

        Yeah. Not so reckless since they were able to pass the buck to European taxpayers, so that they take the losses instead when the shit hits the fan. Funny how even Bloomberg (!) has a different opinion on this:


        Frankly, I would appreciate it if you won’t reply to me again. Consider me the enemy of your moral system and your sense of humour. Thanks in advance!

        1. brazza

          Thank you for drawing the line, Alan. I could say ditto to all. This is the worst possible outcome because it implies no change. We’d rather keep the zombie going in the hope we can magically discover a way to resuscitate it. I had hoped for radical, courageous, painful change even without a clear roadmap. Just get the hell out of that hole … Maybe the world is hostile outside the cave, just like everyone says it will be. But for God’s sake take the risk of finding out for sure, rather than sit there losing sanity from O2 depletion.

          1. LeonovaBalletRusse

            “the world is hostile outside the cave” — you mean like “outside the caves” to which the ravaged people of Laos fled as a result of the Kissoff Agenda “under Nixon?”

        2. LeonovaBalletRusse

          Money quote in econintersect link above re Draghi conflicts of interest and perjury: “in addition, Goldman Sachs shorted Greek debt.” The GS paradigm, straddling spreads set up to fleece their “customers” for the kill.

          Prof. Stiglitz, “Stand like a man.” Your time has come.

        3. tiebie66

          Hold it! You owe Ruben an apology. Greece’s deceit came before accession to the EMU. One could argue that the creditors were indeed deceived. Even if others did the same thing, it cannot absolve Greece (or the others).

          Much of the fault lies with Greece and Greeks: for lying about their finances, for accepting way more credit than they were able to service, for electing unworthy politicians, for working more hours than Germans but producing far less, etc. etc. (Much of the fault also lies with Americans: for living beyond their means, for not paying attention to their civil structures, for allowing themselves to be captured by entertainment, etc. etc.)

          Some painful adjustments are inevitable. First amongst them a realistic self-assessment. Can’t see a way around it. Must also admit to a bias due to my admiration of classical Greece. Hope the modern Greeks manage to overcome these trials.

          Come to think of it, we are fretting about details (Europe, UK, US, China, Japan – all have serious credit problems but pursue different remedies. Interestingly, an experiment of sorts, we may know the outcome in some 20 years’ time.) The devil, perhaps, hides in the Zeitgeist, not the details.

          1. Alan

            No apology. Read my post again. Everyone likes scapegoats, but it shouldn’t fly with intelligent people. When I see Germans taking responsibility for their banks, Italians taking responsibility for their Morgan Stanley deals, the other countries that did Goldman swaps coming clean, then I will accept the criticism for Greece.

            And funny how a guy who likes classical Greece believes in collective responsibility. Are all Americans responsible for the Iraq war? Are all Germans responsible for nazi crimes? Should I go on?

            Funny how that thing with collective responsibility works for some, but not for others. Generally, it’s called hypocrisy.

  4. liberal

    I don’t understand this at all—why wouldn’t the Greek people be almost unanimously in favor of defaulting?

          1. cirsium

            “fear of the unknown” Agree. It is a pity that what happened in Russia and Argentina is not more widely known. Catastroika is a good documentary on the fate of Russians under neoliberal see

            OT Yves, did you see the reference to Naked Capitalism in today’s Daily Telegraph (Ambrose Evans Pritchard on the Greek catastrophe)?

          2. Enraged

            Same reason we bailed out our banks. Fear. Well, fear of danger never excluded danger. Time to cross that ditch. Worldwide. because the longer we wait, the more casualties there will be.

            Or… is this the idea?

    1. MG

      The same reason the US was pretty much unanimously in favor of invading and occupying Iraq. Fear

    2. Yata

      “I don’t understand this at all—why wouldn’t the Greek people be almost unanimously in favor of defaulting?”

      It would mean they would have to vote all over again until they unanimously chose austerity.

  5. Bam_Man

    Greece, Portugal Ireland and Spain (maybe even Italy, too) are nothing but an “undercard” for the “Main Event”, which will be when the bond market sets its sights on France.

    Yesterday’s elections in France, giving the Socialists a majority in the National Assembly and free reign to implement their economically insane policy agenda, signal that the “Main Event” is about to begin.

    1. Hugh

      Care to amplify on France’s economically insane policy agenda because the last I heard the Socialist program was pretty middling.

      1. Bam_Man

        For a country whose finances appear to be increasingly shaky, the parts about hiring 60,000 teachers, lowering the retirement age back to 60 and levying fines on any company that plans on laying off workers sound pretty insane to me.

        1. F. Beard

          Well, if France can’t afford it in Euros then it can go back to the Franc and spare itself a lot of interest payments (to foreigners?)

          1. Bam_Man

            Well, something like that.

            Personally, I think that Germany (along with Luxemburg, Finland and Netherlands) surprises everyone by “temporarily” leaving the Euro so the ECB can monetize the entire Spanish, French, Italian, Portugese and Greek bond markets.

  6. emptyfull

    The German response is telling. I think we’re underestimating the German government’s understanding of the magnitude of the crisis.

    I’m guessing that the Germans want Greece out of the Euro. Why? To create their “Lehman Moment” — a disaster just big enough to shake up everyone (including their own population), without total economic armaggeden (except in Greece). Then they can assert and probably receive the power to make dramatic changes in the structure of the EU that would further drain the control of “sovereign” democratically-elected governments over their own economies. I’m thinking they’re really serious about trying to create something approaching a German-dominated United States of Europe, and are hoping they can acheive this in an atmosphere of contained – but serious – crisis. “The European Project” is still on the march. Because the last few empires that ruled over most of Europe were sooo stable and awesome. So if Greece won’t pull, watch for Germany to push.

    I really think we’re in for some radically new politics when the crisis begins in earnest.

    1. brazza

      One definitely gets the impression that there is nothing haphazard about Germany’s response to date; theirs appears a carefully charted path of binary responses from which they will not deviate, regardless.

  7. YesMaybe

    At this point, after Samaras has met the various party leaders, it seems to be pretty much certain it will be an ND-PASOK-only coalition. It remains to be seen whether Samaras, some other politician, or some ‘technocrat’ stooge will be PM. But, the key thing to notice is that the coalition will have a majority of 162 between the two parties, compared to the 160 that G-Pap’s PASOK had before this year’s elections. In other words, a coalition that is as narrow, but composed of two antagonistic parties, and operating in an even worse economic and political environment. The only thing holding them together will be the knowledge that they’ll do even worse in the next election.

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