Feb 28, 2012
This is a critical time for Greek debt negotiations, and, regrettably, communication between the Greek government and the “troika” (the combination of the Commission of the EU, the European Bank, and the IMF) is out-of-sync. There are obvious reasons. The track record is negative (the first bailout failed, thereby necessitating a second one), and each side has many things to blame the other for, with neutral observers seeing both sides. It is true that the memorandum was focused mainly on financial issues of debt repayment and not on economic recovery of Greece to enable it to service the debt in the long run. It is also true that the Greek side fails to meet the goals set by the plans.
At this juncture, distributing blame is neither useful nor will it generate any consensus. Rather, we must focus on the future, in order to avoid a collapse of the negotiations, a disorderly default, and the world wide consequences (which despite claims that they will be less significant than two years ago) will be felt throughout the EU as well as in the US, China, and obviously the rest of the world.
The two negotiating parties have reached the following stage: On February 12 the Greek Parliament by a 2/3 vote accepted the new memorandum agreement. The meeting of the Financial ministers of European countries was planned for February 14, and it was replaced by a video call and postponed until February 20. In the conference call, issues regarding the lack of confidence in the Greek commitment were raised, and assurances about post-election Greek compliance to the agreement were sought.
The requirement of “post-election compliance assurance” is a terrible idea that by itself has the potential to derail immediately the entire package and send Greece into disorderly bankruptcy, and the EU and the world into a financial tailspin. Here is why: First, the request is impossible to satisfy in ANY democracy. Second, Greece is now in a much better state politically to fulfill its obligations than it was a week ago, or for that matter, since 2009.
1. The impossible request. The reason that we have elections in democracies is so that the people will decide the composition of their ruling bodies (Parliaments, or Congresses and Presidents). All parties accept the fundamental uncertainty of the electoral process, and all incumbents promise that they will accept their replacement if the people chose to decide this way. One can ask people to postpone an election, but not to cancel it. And one can certainly not ask people to guarantee what will happen after the election.
Let me use an example from recent EU history to make this point clearer to the people who request assurances. When the Greek Prime Minister George Papandreou unilaterally announced a referendum for the approval of the agreement between Greece and the Troika, the leaders of EU countries (particularly Merkel and Sarkozy) were outraged: One day they thought that they had a firm agreement while the next they discovered they had only a chance of an agreement. (Actually, the probabilities in their eyes were very low, because they knew from the French and Dutch referendums on EU institutions (which derailed for years the process of EU integration) that referendums do not get answered on the basis of the question asked but on the basis of the identity of the questioner.) All observers sided with their analysis, the referendum was aborted and Mr. Papandreou had to resign.
Now the roles have been reversed. The same people who objected to the Greek referendum want to proceed to make outcomes conditional on electoral results. The most likely outcome of such a process would be the polar opposite of what they actually want: the elections would give a majority to anti-EU parties; the bailout will not be signed, and Greece will go into disorderly bankruptcy.
2. The current political landscape.The Parliamentary meeting of February 12 produced a monumental change in the Greek political landscape. The main political axis of division is no longer Left-Right ; rather, it is the long-time latent euro-drachma divide (or what we can alternatively call the modern vs. old Greece divide or the pro-anti memorandum divide. Right now, three quarters of Greeks say they want to remain in the Euro despite the very onerous implications of this choice on their welfare.
The re-alignement of the political system to shift from traditional left-right divisions to the central question of the Greek alignement with the EU (which is in agreement with the will of the people) had not happened during the PASOK government. The party of New Democracy had a significant component (including its own leader) with the populist right and was opposed to the memorandum. This is what the EU has wanted for years during the previous phase of the crisis. Even PASOK had a strong component of “deep PASOK” which was supporting Mr Papanderou but was against reform.
The vote of February 12 transformed the situation, and forced the leaders of the two parties to dismiss those members who voted “no” not only from the parliament but from the parties themselves. Some of these members say that they had not realized that they would be dismissed for voting “no”, others that they will participate in the forthcoming election with new anti-memorandum parties. Be that as it may, the Greek electoral law gives a significant bonus to the first party (of the order of 50 out of 300 seats). This bonus was sufficient in the past to create single party governments, but right now, it is unlikely. New Democracy will be the first party (according to all polls) but its own percentage will be so low that a second party will be required for a government coalition. With the anti-memorandum elements (or most of them) gone, the only viable government coalition is New Democracy and PASOK. Indeed, if the first receives 25% of the vote and the second some 15%, they can then form a government with around 155 (out of 300) seats. Significantly, the political game and the pressure from the EU has produced impressive political results. But untimely continuing pressure from the EU side may well reverse them!
Time is of essence. The Greeks understand this. Indeed, they forced a Parliamentary vote on a Sunday before the Euro group Finance ministers meeting. All of us have seen videos of Athens burning. These acts were committed by a very small group of people, with hoods who systematically went from one salient place to the next. Yet, immense forces of police were surrounding the Parliament and did not move. Why? Because they were afraid that the real goal was to attack the Parliament and postpone the vote, which under the circumstances would have led Greece to miss the EU deadline.
The window of opportunity for Greece, for the EU, and for their partners (US) and creditors (China) will close if, on Monday, Eurogroup meeting decisions are made conditional on the outcome of Greek elections. Athens burned but the vote was salvaged. The major parties split and a new party system is emerging with a coalition between them in support of the memorandum. Doesn’t this show commitment?