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After Greece's Elections, Parties Face Immense Task

7 MINS READJun 15, 2012 | 11:51 GMT
After Greece's Elections, Parties Face Immense Task
Oli Scarff/Getty Images
PASOK supporters at a rally June 13

Update: June 17, 2012

Official figures form the Greek Interior Ministry indicate that the center-right New Democracy party (ND) is expected win the June 17 general elections with roughly 30 percent of the popular vote. The far-left Coalition of the Radical Left (SYRIZA) is expected to finish second at about three percentage points behind the ND. The center-left Panhellenic Socialist Movement (PASOK) will come in a distant third with around 12 percent. Four other parties passed the 3 percent threshold to enter parliament: the newly formed Independent Greeks party, the far-right Golden Dawn, the Democratic Left and the Greek Communist Party.

Since no party achieved a majority, Greek lawmakers are now attempting to form a coalition government, a feat they were unable to achieve after the May 6 elections. The main issue dividing the parties involves conditions for Greece's current bailout agreement. According to the Greek Constitution, the party with the most votes — currently the ND — will obtain an additional 50 seats in the parliament and be responsible for forming a government. If the ND fails to form a government, the second- and third-place parties will be given that responsibility. If none of these parties reaches an agreement, the Greek president will decide whether to form a national unity government or call for a third election. If the current results hold, Greece's two pro-bailout parties, the ND and PASOK, will have the 151 seats necessary to form a majority coalition.

PASOK leader Evangelos Venizelos has insisted that his party would not join a coalition that did not include SYRIZA. Given its popularity, PASOK probably believes the public would not deem legitimate any coalition that did not include SYRIZA. So far SYRIZA has rejected the prospect of participating in a government with either party. It is likely that SYRIZA believes it can benefit more from being a strong opposition force within the parliament rather than compromise on its anti-bailout stance. Without SYRIZA's support, Greece's new government will be weak and fractious, hindering its ability to address the needs of the state.

Without a government, Greece will be unable to secure further financial assistance from the international creditors. But Greece's financial difficulties go far beyond servicing its massive debt or placating its creditors at the European Union and the International Monetary Fund. Going six weeks without a government has led to a rapid deterioration of conditions in Greece; citizens are facing shortages of critical medical supplies, a potential energy crisis and rising crime. The party that takes the lead in forming a coalition government will be forced to redress those issues and negotiate bailout conditions to keep the country functional.

Summary

Greece will hold parliamentary elections June 17 after failing to form a government in the month since May 6 elections. The vote comes amid increasing political pressures resulting from austerity measures mandated by the terms of the country's bailout deal with the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB).

Whichever parties assume power in Athens — whether they support or oppose the bailout — the terms of the rescue agreement will likely need to be renegotiated. With Greece struggling to pay for even basic social services, Brussels is concerned that the harsh conditions imposed by the current agreement could spark a disorderly Greek default at a time when several other eurozone economies are increasingly fragile. Consequently, Brussels has appeared more willing in recent weeks to adjust the terms. While the composition of the Greek government may determine the tenor of the renegotiation talks, Athens' numerous economic challenges will put pressure on the new government to act immediately.

Analysis

Recent opinion polls indicate a near tie between the anti-austerity Coalition of the Radical Left (Syriza) and the conservative New Democracy party, so neither faction will likely win a majority. This will require the formation of a coalition government, which the parties failed to produce after the May elections largely due to a disagreement on whether to accept the conditions attached to Greece's current bailout deal.

However, Greece's financial difficulties go far beyond servicing its massive debt. Whichever party takes the lead role in the coalition government will be forced to address those problems simultaneous to the bailout conditions in order to keep the country functioning at a basic level.

Debts in Critical Sectors

Greece owes immense amounts of money to private suppliers for basic goods and services. The country imports some 40 percent of its food, all of its oil and natural gas, and almost all of its pharmaceuticals and medical supplies. Greece's pharmaceutical union is debating whether to continue a boycott of patients insured by the state health care fund due to the hundreds of millions of euros owed by the fund to suppliers, which had been providing medications to patients on credit since 2010. In the meantime, patients are going weeks without medications for chronic and life-threatening illnesses. Hospitals are reporting shortages of basic supplies such as gloves, syringes and blood bags — not to mention more expensive medications and medical supplies — and refusing basic services to patients covered under the state fund unless they can pay in full.

On other fronts, Greece's primary energy provider, the Regulatory Authority for Energy, sought an emergency loan June 8 to prevent rolling blackouts caused by a decline in state funding. State-owned natural gas company DEPA is concerned about its ability to pay suppliers such as Russia's Gazprom and Italy's ENI. Public frustration has also resulted in a worsening security environment; near-daily reports of attacks on foreigners highlight increasing anti-immigrant violence and crime.

Growing Pressure Across the Eurozone

As Greece's domestic situation appears to be reaching a breaking point, Continent-wide pressure has also increased in the past month. As the consequences of austerity reverberate among struggling southern European nations, newly elected French President Francois Hollande is building a coalition of states to shift the focus of recovery efforts away from austerity and toward growth-stimulating measures. On June 13, however, Hollande warned Greek voters to honor the country's existing commitments to austerity measures.

Within the past week, the eurozone's hasty agreement to provide Spanish banks with up to 100 billion euros ($125 billion) failed to ease market pressure on Spain while pushing up Italian financing costs to nearly unsustainable rates. Europe does not want political instability in Greece to lead to a chaotic default, which could cause additional trouble throughout the rest of the eurozone. Thus, Brussels seems more willing to negotiate with Greek authorities now than in the weeks following the May elections.

Syriza leader Alexis Tsipras said Spain's bailout proves that austerity has failed, vindicating Syriza's hard-line position against the current bailout agreement. Meanwhile, New Democracy leader Antonis Samaras said Greece's best prospects lay in negotiating with its European partners, not opposing them. However, if Syriza wins a plurality of the vote and manages to form a coalition, it will likely moderate its position in order to continue a relationship with the European Union. Likewise, if New Democracy takes power, it also will pursue a renegotiation. The bailout's terms are simply unsustainable given the other economic pressures on the Greek state.

Greece's Institutional Weaknesses

Any coalition will likely include parties that have little experience in actual governance. Indeed, until the May election, Greece's traditional main left-wing party was the Panhellenic Socialist Movement, not Syriza. Inexperience at such a sensitive time could prove costly.

In addition to lacking a strong, united political force to lead the government, Greece does not have the well-functioning state institutions necessary to deal with its myriad problems. The lack of effective institutions was a major factor contributing to Greece's economic crisis. Now, as it takes on increasingly unserviceable debts, the country lacks the time, resources and political unity to develop those institutions.

Greece cannot survive and grow economically without external funds. The country imports more than 80 percent of its goods and produces little domestically. Its economy is primarily service-oriented and based on tourism and shipping. It lacks significant natural resources to export, and its industrial and manufacturing sectors are underdeveloped. In short, Greece lacks the basic infrastructure necessary to build an economy. Overcoming this requires capital and time — neither of which the country has — as well as unsevered ties to the eurozone, its primary creditor and trade partner.

 

Editor's note: An earlier version of this analysis misstated the amount Spanish banks may receive from the eurozone. The eurozone could provide up to 100 billion euros.

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