Vicky Pryce, author of Greekonomics: The Euro Crisis and Why Politicians Don't Get It, on Greece's future as the Euro crisis continues
Greece continues to dominate the news with a meeting of the European Finance Ministers early this week and Hollande visiting Merkel as President for the first time. What Merkel has in common with David Cameron of course is that she also snubbed Hollande when he visited her country before the elections, a complete misjudgement. But it is Merkel who badly lost in one of the states where the anti-austerity party won handsomely last weekend and it is she who faces general elections next year. And it is also she who has divisions within her ranks in terms of the way forward on the Euro and the attitude toward Greece. In my view, Hollande is, maybe by default, the most important leader in Europe just now, elected on an anti-austerity/pro growth (and let's also face it, anti-Sarkozy) mandate. And if the Euro project fails, through a Greek exit that leads to a domino effect across the periphery countries and beyond, the finger will be pointed at Germany and Merkel alone. This, in my view, is a great potential burden to bear and it is because of this that I think that on balance every effort will be made to keep Greece in the Euro.
Meanwhile, the Greeks, of course, are their own worst enemies, with a schizophrenic vote on May 6. They voted to remain in the euro but against the measures that will keep them in it. Did they suddenly become neo-nazis? No, they didn't. Votes went to some extremists on both sides of the scale for lack of other choices. However, with 35% abstention and 20% going to parties that didn't make the 3% Parliamentary cut, the verdict of this election is still out.
The way to look at these elections, therefore, is as a play of two parts. In the first, the Greeks voiced their objection to the two-party establishment and the pain their policies have brought to the Greek people, by simply voting against them. In the second, they'll voice what they really want. And during the interval they were starting to sober up, as opinion polls showed that they wanted a coalition or unity government to take the country through a transition period in which the political system would reinvent itself and deal with the national realities.
Unfortunately, efforts to form a coalition government have failed, partly on account of SYRIZA's, the far left coalition of parties under the charismatic Tsipras, refusal to either join or offer its support. New Democracy, PASOK and DEMAR (a new moderate left party) could form a majority coalition government with the 168 seats out of 300 they hold, but recognize the fragility that this would entail. SYRIZA was even offered to lead a coalition with DEMAR and PASOK's support, but again refused.
So what will happen next? The realities are beginning to sink in; he reaction from Europe to the inconclusive result, the stock markets crashing, the Euro weakening and increasing talk of a possible forced Greek exit have sobered the mood. And it has become increasingly clear that SYRIZA lacks a government platform. It is solely an opposition party, like the KKE communists. Some of their proposals have proven totally absurd, like financing the public sector from people's savings in the banks! Its populist platform calls for Greece to remain in the euro, but without the austerity measures that have brought the recession. And the far right Independent Greeks basically want to annul the Bailout Agreement and provoke military conflict with Turkey and FYR of Macedonia.
Yesterday's session under the president of the Republic, for the purpose of forming a caretaker government, involved 5 of the 7 party leaders that entered Parliament. The communist leader did not attend, while the neo-nazi leader was not invited. They failed to reach agreement on the formation of a national unity government. They refused to even consider the formation of a special purpose government run by technocrats, like Italy's. Some of them stated that they feared that it would signal "the end of politics". But in reality, any technocratic government would have found it difficult to operate with a parliament that would be unlikely to vote in favour of austerity measures that the electorate want to see changed or dropped.
So, the party leaders opted for elections to be held sometime in June; some because they want to be prime minister and some because they think they can further increase voter preference. In the interim, the economy will continue to suffer, as the 6.2% drop in GDP in the first quarter of 2012 showed. And the ability of Greece to meet its bail out conditions will be reduced even more and the noises calling for a Greek exit will increase. Wrongly in my view but the next few weeks will be crucial.
You can listen to Vicky speaking about Greece and the Euro crisis here.