Greece: Power Vacuum Threatens Bailout

Greece risks becoming ungovernable, and the power vacuum threatens the both the completion of the EU bailout for the country, and its economy, which was enjoying a recovery.



The failure to elect a president in the Greek parliament, after two rounds of voting, forecasts an end to the coalition government of Prime Minister Antonis Samaras and makes the prospect of early elections likely.



Greek voters are fed up with the ruling coalition, which has been obliged to impose harsh austerity measures as dictated by the so-called Troika of lenders in the Greek bailout – the International Monetary Fund, the European Central Bank, and the European Commission who arranged the bailout in 2010.



Greeks now refer to the coalition as the people who "tax everything that moves," and are moving to back the parties of the Left.



 The radical left SYRIZA party has maintained a lead of several points in the polls for the past week.  SYRIZA nearly won the last general elections in 2012, finishing just 170,000 votes behind the ruling party. SYRIZA won the European elections, in May by a margin of four percent.



"This 'supermarket' party promises almost everything to anyone, masking its policies with romantic pledges to stop humanitarian crises, to make the black market and bureaucracy disappear, to increase the minimum wage and minimum pension by around 40 percent (despite the fact that the social security system is in bad shape) and, last but not least, to negotiate a huge amount of debt forgiveness, mainly by having--sorry, ordering—the European Central Bank to buy most of it," warns political analyst Theodore Pelagidis of the Brookings Institution.



It is still possible for the ruling coalition to win the third vote for the president in parliament which will take place on Dec. 29. The coalition candidate, former European Commissioner Stavros Dimas, won 168 of the total 300 votes.  In the third election, he will need to garner 180, and he will gain support from Prime Minister Antonis' announcement on Sunday that a date would be fixed for early elections next year if his candidate wins. The delay would enable a smoother transition in power and avoid the power vacuum that is likely to ensue if snap elections are called after the parliament fails to choose a president.



 The stakes are high for the Greek economy.  Negotiations with the Troika have stalled, and a government dominated by the Left is likely to make them impossible. This means that Greece will have to face harsh terms for credit, and that will hurt the nascent economic recovery currently underway.



This is confirmed by the Organization for Economic Co-operation and Development, in its most recent report about the country.



"Greece, which has been under an internationally coordinated adjustment programme since 2010, has made impressive headway in cutting its fiscal deficit and implementing structural reforms to raise labour market flexibility and improve labour competitiveness.



Shrinking domestic demand has also led to a substantial reduction of the current account deficit," the report says.



But, as the OECD report shows, an ongoing recovery is crucial to the country's ability to service its debts.  Political uncertainty is already hurting that recovery.



"Political risk is killing the economy," says Pelagidis.  "There is a positive correlation meaning that when political risk is high, unemployment rises. While it is not the only reason, it certainly contributes to decreasing employment. Data from the last couple of months, during which time political risk skyrocketed, show that an increase in employment observed in the first two quarters of 2014 has now been reversed."



Meanwhile, SYRIZA has shocked the international business community with a presentation of its economic strategy in London last week.



A note describing the meeting by Joerg Sponer, a partner at Capital Fund, was leaked to the Greek media on Sunday.



"SYRIZA wants to sell everything," Sponer said. "The program is worse than Communism, and will lead to total chaos."



Sponer warned that massive capital flight would follow a SYRIZA elections win.



While Sponer's scenario may be extreme, it gives an idea of the political vacuum and economic uproar that is likely to follow snap elections. The Troika is reportedly braced for it, and, indeed, thinking about making an example of Greece. The consequences of this confrontation are not sanguine for the people of the country.



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