Monday 4 June 2012

Greek Elections and Deus ex Machina

Euripides is one of the greatest of ancient Greek writers. The play in his tragedies was so convoluted and complex that only God’s intervention right at the climax could solve it and give it a happy ending. The God was usually lowered by a crane (Machina) onto the stage.  Greek schoolchildren are taught Euripides and some argue that it forms part of the cultural memes of the Greek society. The modern electoral and logical impasse in Greece points to a play with similar climactic structure.

Greece is walking to its second election in a month with 20% unemployment, a deep recession/depression, a 5 billion primary deficit to pay salaries, a bankrupt banking system, a deposit bankrun-marathon, no government, no money, no hope, and no sympathy from the European spectators and with the threat of exiting the EMU. Beat that Mr Euripides. However, this is real life and the probability of a Deus ex Machina appearance like in Euripides plays is negligible. Still, many are looking at the present Greek political parties for that Deus. Others are hoping for an ECB divine intervention to save the whole of Europe.   

Irrational Greek Polls 
At the risk of being totally wrong I will try to chart some of the possible scenarios the day after the Greek poll date. So far the published polls have given a conflicting and volatile picture. Many question the credibility of the Greek polls and equate them to the credibility of the Greek statistics. The truth is that Greek pollsters had it easy the past decades. They had to choose between two parties and a very rigid bi-partisan electorate. Now the situation is more fluid. Many Greeks do not feel bound by political parties or ideologies. The main driver is fear, frustration, desperation, outrage and revenge. A major theme is “Every man for himself”. Many bank on divine intervention for a better tomorrow. Greeks are called to judge and to vote the lesser of possible catastrophes.

The situation is a logical conundrum. Irrational populist policies capture the imagination of the people who vote for irrational populist politicians who know that they can only be reelected if they offer irrational populist policies.

You may ask why do irrational populist policies captured the imagination of the people in the first place. The answer is simple. For far too many years we allowed irrational populist policies to succeed. Witness the housing bubble in the US. The irrationality was there but was clouded by too much liquidity.  
So here are some thoughts on the scenarios for the morning after: 

SYRIZA on top 

SYRIZA finishes first and gets the 50 seat bonus. Assuming that they have not reached the magic 37-40% they would not have an absolute parliamentary majority. Will they try to form a government? Do they want to be in government at this particular moment in Greek history? Chances are that they will get very little sympathy from the communist party (KKE) but they could find friends in both the PASOK and the DHMAR. So this is going to be a “leftish” government that would try to renegotiate the MOU (Memorandum of Understanding) with the Troika. Here is the tricky point. Troika may do some cosmetic changes to the program but SYRIZA would have a Torvill & Dean moment on ice. A triple reverse somersault and land on one foot. Can they pull it? I think they can. The left in Greece has traditionally been much better at propaganda and media manipulation. The recipe is well known. We say and promise the sky and the stars. When in government we throw a bit of moon-dust and install our own people in key positions so they are happy. The ideological fantasists are left with a future promise or leave the party to form a splinter group (the left has more splinter groups than stars in the sky). Would the ND object to this outcome? Yes they will, but have limited way of influencing events. The ND is not an activist’s party and not militant at all. The real threat to the stability of the system would come from the far right which includes the fascists of GOLDEN DAWN. This however, is still a manageable problem.

The main issue is whether this left coalition could reverse the Greek economy’s free fall and avert the exit from the monetary union. Here is the problem. Even if Troika concedes on a 5Y absolute grace period on debt and interest payments, the Greek government would still have to find 5billion a year (2.5% of GDP, a number that is rising daily) to cover the primary deficit. It would be unthinkable for TROIKA to give this amount of money with no strings attached unless they want to buy the extra few months before they have completely immunized themselves from the effects of Greece saying goodbye to Europe. Reforms are painful and mean public sector shrinkage. How long before the coalition is discredited and collapses? Stumbling and muddling through is an option but with the Greek economy at a free fall any bets are off. Still this may represent the smooth option for Greece. It also perpetuates the myth of the left in Greece. Namely, that the left possesses the ultimate truth but the bad capitalists and faceless foreign interests, secretly conspire against it. If it reminds you of religion, it is because it shares the same infallibility qualities.  

ND on top 

Assuming again that ND is the first party but with no absolute majority the choices are equally daunting. ND can form a coalition government with PASOK and possibly with DHMAR. They would need the coalition anyway as the quality of their executives is debatable. Although this on paper is a more balanced coalition involving parties from the traditional left-right-center it does not include the new kid on the block, SYRIZA. This is a recipe for disorder and chaos. SYRIZA would most probably oppose any coalition renegotiation agreement with the TROIKA actively and militantly. Any new treaty would be branded treacherous and damaging to the people’s interests. In this case, and given the disruption the government would not survive for long. Let us not forget that both PASOK and ND have always preached that the TROIKA program is evil and that they only signed up to it because they needed the money and not because they truly believe in reforming the economy. SYRIZA is just capitalizing on this obvious double-face talking. New elections would bring SYRIZA on top, possibly with absolute majority. At this point whether Greece is in the monetary union or not is a secondary issue. The main event is that SYRIZA would be the absolute masters. This may be the optimum path for SYRIZA to gaining power.  

 Unity Government 

This scenario assumes that all parties, with the possible exception of the Communists (KKE) and the fascists decide to join forces and form a government similar to the Papademos government of two months ago. Of course this begs the question of why have two elections and so much trouble only to go back to where you were only few weeks ago, but that’s politics. A third election cannot be ruled out but at least it may take few months. The pressure from Europe in this case would probably be greater as there would be no opposition. The mandate of the Unity government would be to save Greece from exiting the Euro. In doing so, the parties would have to share the blame for the reforms. Clearly this is a solution that goes against the survival instinct of each and every party.

This may be the solution that buys more time for Greece but the ultimate problem is that all the parties have consistently lied on the nature of the problem and the medicine needed. The unity government would pass all the laws and reforms that Europe has demanded.  However, as every Greek knows, passing a law and enforcing it or implementing it is a different thing altogether.


Unless there is a surprise and SYRIZA drops to a third position, for any coalition to have any chance of success SYRIZA must play along, openly or tacitly. On the other hand, the hard reality is that no matter who comes first in this election may be irrelevant. The Greek economy is on a free-fall. The economic depression is deep and there is no prospect of coming out in the next 2-3 years irrespective of the currency in circulation. The best one can hope is to stabilize the situation. Tax revenues are falling as more and more people refuse to depart with their cash for fear of Drachmatization. They hoard their Euros and have stopped any investment or unnecessary spending activity. Velocity of money is virtually zero and the political uncertainty is not going to go away anytime soon. Reversing this would mean new political parties capable of carrying out the faith of the Greek people. This is a long way away. So far we have seen a recycling of ideas, politics and politicians. Even SYRIZA that self-brands itself as something new resembles the populism of the 80’s PASOK. A Deus ex Machina moment is a long way away but the climax is approaching.