Monday, 7 May 2012

Reality Check with no Cheque (part 2)

  •  Chances of printing money in Europe increase 
  •  Euro possibly down. Recover later
  •  Greece’s chances of going it alone increase significantly. A possible exit from Europe not just Eurozone is a possibility. 
 Forming a government in Greece would be a Herculean task. Most European governments hoped that PASOK and ND the two parties that more or less voted for the Troika bailout would master a majority. They didn’t. Together they have 149 seats when a minimum of 151 are needed, so they would need either defections or a third party to join them. If all attempts to make government fail then elections would be held again soon, possibly in 4-5 weeks.
Given the rise in anti-European feeling, Europe and the EU would have to decide if it is optimal to continue with their financial support or let Greece go. Supporting the Greek state is going to become very awkward for Europe’s politicians if the Greeks themselves do not want to be helped. Many European governments may decide that it is time for Europe to call Greece’s bluff. Maybe they would think, it is time for the masks to be removed. The reality check would come when the next European cheque does not arrive. The Greek state still needs money to pay salaries and pensions and unless they pay them in philatelic stamps, like they did during the war, they would need either to print a new Drachma or pay them in IOU Greek bonds or try other innovative but painful solutions.

How much would Europe risk if they go down that route. Well, financially after the PSI, Greece poses no direct threat (debt or bond markets) to the markets. As I said many times, the PSI is a double edge sword and a very sharp one. Stopping payments after the PSI, or even exiting the Euro, would be a political event not a financial/banking one. The markets may see the Greek exit as a positive event since it would allow Europe to concentrate its attention to Spain and other peripheral countries that want to be saved. Or the markets may see the seeds of the breakup of Europe.
Perhaps the threat of breakup coupled with the French change might convince Germany to allow printing money to save Europe. But would that Europe include the Greeks? Saving Spain, Italy, Portugal is one thing; throwing money into a black hole is a different proposition. The truth is that most European countries have turned autistic. The spirit of collaboration and solidarity is running very thin and everyone is looking inwards.

Results of the Greek elections are out so let me start with few observations: 
  •  The three parties that supported the coalition and the Papademos led government were decimated. ND and PASOK the two parties that used to poll 80% and ruled Greece for the past 38years managed only a 32%. LAOS on the other hand didn’t even make it. 
  • SYRIZA the left coalition is the now the second party ahead of PASOK. Their campaign against the austerity measures and the edicts of Europe and Troika was successful. They are now faced with the possibility of living under their own sword. 
  • INDEPENDENT Greeks. Undoubtedly a major winner of these elections. Their party was formed only months ago and they are the mirror image of SYRIZA on the right. Campaigned against the EU the Germans the Troika. In the same way SYRIZA cannibalized PASOK they had a feast on ND. 
  • Golden Dawn. Every country has an ugly side and Greeks would be able to put a face to the secretive fascist party of Greece. Apart from their anti-immigrant paranoia the essence of their xenophobia and anti-European-ness does not differ from those of SYRIZA or the Independent Greeks. 
  • Communist Party. Although they increased their share of the vote slightly they did not manage to gain on the general anti-European feeling. Perhaps the fact that they advocate a communist state played a role. But probably the biggest factor is that they too represent a traditional and institutionalized party. The Communist party failed in its promises to protect the less well-off Greeks and resorted into militant actions that alienated many Greeks. 
  • DHMAR. A winner of the night managing to get 6% of the vote out of nowhere. They market themselves as the civilized faced of the left that wants to stay in Europe but wants a more socially responsible society and less austerity. 
  • Other smaller parties failed to gain enough votes to enter the parliament. It is no coincidence that DRASI, DHSY and DIMIOURGIA XANA, GREENS were all pro-European parties.
    Next day in Greek politics 
    Following the Greek constitution, the first three political parties (ND, SYRIZA and PASOK) would attempt in turn to form a government. If they fail there would be one final push before the president declares again elections. The difficulty with forming a government is that anyone who participates in it would most probably sign his political death. For example, if SYRIZA joins and attempts to renegotiate with Troika they would either have to make a U-turn in their anti-Europeanism or drive Greece out of Euro and possibly Europe. To think that Greece has many cards to play is naïve when there is a primary deficit of around 4billion a balance of payments of -19billion and a recession running at -5%.

    With regards to politicians and political parties, chances are that both Venizelos and Samaras would be cremated un-ceremonially by insiders. Mr Samaras gambled and lost big time. He is the one who insisted in having the elections and he failed miserably. Mr Venizelos on the other hand failed to revive his party would be left in history as the leader who took a proud socialist party and placed it third. 

    YES or NO to Europe 

    As mentioned before these were transit elections for the Greeks. Their significance is largely semantic. The real elections would be the next ones were Greeks would be called to decide a YES or NO to European membership. This of course assumes that Europe would be patient enough to wait.