Monday, 20 February 2012

The Noose Tightens

Greece’s fate hangs in the balance of today’s crucial Eurogroup meeting. A green light will pave the way for a debt forgiveness of about 100 billion euro ($130bn), and a second bailout worth 130 billion euro ($170bn). A further delay could push the mechanics of Greece’s debt reduction past a March 20 deadline, when 14.5 billion euro ($19bn) in bonds mature. At that point, Greece would have to declare a payment freeze to creditors and be declared bankrupt.

Despite the staggering sums being spent to prevent a Greek default, it is decreasingly meaningful to present the bailout and the prospect of default on opposing scales. One reason is that with up to 70 percent of debt in private hands due to be wiped off the books and Greece’s commercial borrowing rate close to 30 percent, markets will consider Greece as being effectively in default. The second reason is that austerity measures designed to cut the deficit are already steeping blue-collar society in living standards simulating default. Call it a social default. An opinion poll released yesterday by the Sunday newspaper Proto Thema revealed that 60 percent of voters believe the country will default anyway, with or without a second bailout. Last Sunday’s poll in another paper, To Paron, recorded 48 percent of voters saying they would rather default than have another round of austerity measures. But in the eyes of most Greeks, it is no longer on either-or situation.

It is, perhaps, less a question of whether Greece will default, as what kind of default will befall it. About sixty percent of Greeks still poll as preferring to remain within the euro, and keeping Greece in remains, officially, the European position. If this is to happen, Greece needs to service what remains of its debt after the so-called haircut to private lenders. The eurozone bailout is designed to assure precisely this – that regardless of the pain in the eurozone’s sovereign interior, it will meet its external obligations to markets and lenders.

Still, for reasons both technical and political, it is possible that Greece will enter a period of default in March.

The technical reasons have to do with the process of enacting the 130 billion euro bailout from Greece’s euro area partners and the International Monetary Fund. The approval of that bailout has now been repeatedly delayed, most recently by the Eurogroup itself, which twice in the past two weeks was unsatisfied with how Greeks propose to cut 3.3 billion euro ($4.4bn) from this year’s budget.

Assuming all went well in Monday’s Eurogroup and the bailout received a green light, the Greek finance ministry would be able to invite private bondholders to participate in a bond exchange. The so-called Letter of Invitation would be dated February 21, and ask banks and funds to swap existing Greek bonds in their portfolios, whose tradeable value has fallen to a fraction of their face value, with new, longer-dated bonds bearing lower interest rates.

Greece must give lenders at least a fortnight to consider the offer, and needs another fortnight to process and collate the responses. That takes the process to late March, when, assuming it has attracted a voluntary participation of at least two thirds of lenders, Greece can vote a collective action clause in parliament forcing the remaining private lenders to submit to the terms of the exchange. It would then urgently have to co-opt holders of the bonds maturing on March 20 in order to avoid default. Greece would still need a couple more weeks to enact the bond exchange, taking the process to early April, but once it had secured universal participation it would be out from under the cloud of default. Its debt would be denominated in new bonds issued with the explicit backing of the eurozone. In effect, while European money is bailing Greece out, these are eurobonds under another name.

The dangers are then more political than financial. Greece’s euro partners are becoming increasingly mistrustful that the country intends to see through reforms and austerity measures that would, on paper at least, return the country to growth in the second half of next year, and to budget surpluses by 2015. They have seen the Papandreou government squander 73 billion euro of a 110 billion euro bailout by performing very little in the way of structural change, and incur massive political cost by enforcing across-the-board pay cuts, tax increases and other austerity measures that penalized the weak.

That policy may have reduced the budget deficit from 15.6 percent of GDP to 9.6 percent last year; but it also put the socialist Papandreou government in a crisis of legitimacy. To survive, it was forced into an alliance with the conservatives, and Papandreou resigned his premiership to a technocrat. Now even this coalition seems in danger of losing its legitimacy in the public view, after parliament’s approval of the latest package of austerity measures a week ago was accompanied by a 100,000 strong march, riots and looting in Athens.

Even more than Greek stamina, the Europeans seem to fear for the constancy of conservative leader Antonis Samaras, whose failure until last week to sign a written commitment to back the austerity reforms was the chief reason why the Eurogroup cancelled its emergency conference on the Greek matter on Wednesday. Simply put, adherence to the austerity and reform programme is politically costly. New Democracy is trying to eat its cake and have it. Samaras ended the letter he did send the eurogroup with a caveat that “policy modifications might be required to guarantee the programme’s full implementation... we intend to bring these issues to discussion along with viable policy alternatives.”

The ambition of Samaras has been a factor in European foot-dragging on Greece. When the coalition was formed last November, he insisted on a general election as soon as the interim administration had completed its three tasks of securing a final instalment of eight billion euro from the last bailout; negotiating the participation of private sector bondholders in the debt forgiveness exercise; and agreeing on the terms of the second bailout with the eurozone. He even provided a date – February 19 – to lend his position credence. That was unrealistically short for the weighty tasks at hand, and he was forced to move it to April 8.

This stance has done enormous damage. It has relegated the generosity of the eurozone to a mere procedural task, and suggested that the real political decision-making process would begin again after the election, with Samaras as prime minister. It has also exposed Samaras’ lack of understanding of the processes involved in the bailout, and his lack of contact with political realities outside Greece. There is a clear and growing constituency in the Eurogroup that is in favour of allowing Greece to default as punishment for its ingratitude. The masonry cut to shore up Greece’s foundations would be used instead to build a wall around it.

The Samaras factor is the main reason why German Finance Minister Wolfgang Schaeuble suggested last week that the Greeks consider delaying an election until the expiry of the four-year mandate Papandreou won in October 2009. Germany is rumoured to be considering a post-dating of bailout money until after a Greek election in order to maintain leverage. The Bundestag is scheduled to debate the bailout on Fabruary 27. But this is where northern Europeans expose how tin-eared they are to Greek political realities. The coalition parties garner no more than 35 percent of voter support in the latest polls. Sixty one percent of Greeks favour elections in spring, whereas last year a majority thought more like Mr. Schaeuble. Clearly these figures are not endorsements for the government of Loukas Papademos, the consensus prime minister, or the austerity programme.

The more Germany tries to dictate directly to the Greeks, the more it exposes the semi-elected nature of the government in Athens. The Greeks may willingly give up much of their autonomy for a period; but Europe’s bilious billions are not enough to force them to give up the democracy they fought for through three dictatorships, Axis occupation and a Civil War. Germany will most likely decide not to take its chances financing a democratically elected Samaras-led coalition in the spring. Most likely, the Greeks will be told that the price of democracy is financial self-sufficiency. While the European bailout will finance debt repayment, Greece may have to achieve an immediate primary surplus, meaning that the first act of the new government will have to be axing another five billion euros from this year’s budget. Right-minded politicians can do this without passing the pain to the working and middle class, because there is still a lot of waste in government and a lot of wealth tied up in public land. But can Greek politicians make decisions in a right-minded manner? The record does not give grounds for much hope.

Monday, 13 February 2012

Minority Rule in Parliament; Mob Rule Outside

Parliament’s uproarious debate ended in a victory the government may not have dared hope for, winning almost two thirds of the 300 seat legislature, even though it aimed for only an absolute majority of 151.

The Greek finance minister can now go to the eurogroup on Wednesday armed with a powerful legislative endorsement and, hopefully, signed commitments from the two party leaders to see through the controversial austerity package. It will cut minimum wage by 22 percent and eliminate 150,000 jobs from the public sector.

This seal from parliament may help alleviate some people's concerns about the legitimacy of this government to impose further austerity. But that boon was counterbalanced by the cost of the vote. The socialists and conservatives who form the governing coalition also suffered defections and abstentions from the party line. Some 43 MPs were punished with dismissal from the two parties, while two dismissals came from right-wing Laos. (Laos had been part of the governing coalition intil Friday, when its leader, Yiorgos Karatzaferis, declared he would instruct his 16 MPs to vote down the austerity package he had a hand in negotiating). This means that parliament now has more independent MPs than at any other time in the four decades since democracy was restored. These can now be expected to campaign, as backbenchers, against austerity. New Democracy alone shed about a quarter of its seats.

The coalition was formed after the socialist government suffered so many defections in November last year over its leader's controversial idea of holding a referendum over the second bailout, that it needed conservative support to legitimise the second bailout plan. But the socialists and conservatives, who won a total of 77 percent of the vote in 2009, today poll a mere 30-odd percent. The socialists' drop has been particularly precipitous, from 44 percent to eight or nine. Since it is their mandate the entire coalition is based on, there is an increasingly strong current of public opinion in favour of elections now - some 61 percent according to a poll published in To Paron today. That is a sharp upturn from last year, when most Greeks wanted stability rather than the roller coaster of a hung parliament.

Outside, on the streets of Athens, the government's legitimacy was called into question more strongly. Close to 100,000 peaceful marchers convened on Syntagma square before parliament, and central avenues.They were soon overshadowed by violent protesters.

After a battle outside parliament lasting hours, police reclaimed control of Athens’ central square. They sent tens of thousands of peaceful marchers scurrying down central avenues. Disguised among them went the violent demonstrators, creating a diaspora of destruction. At least two banks were set to the torch, their steel portcullises prised open, their computers visible smouldering inside. Throughout the centre streets were covered with the gravel of smashed plate glass and broken marble that had been ripped off the front of buildings to be used as missiles against police. As many as 50 demonstrators were reportedly lightly wounded. As lawmakers emerged from parliament, many called for the resignation of the public order minister.

The parliamentary vote was as follows:
278 MPs voted in total
199 voted yes in principle to the measures
74 voted no
5 voted present

Saturday, 11 February 2012

Political Schizophrenia

The agreement last week of a course of spending cuts amounting to three billion euro this year has ended a period of alliance between Greece’s three governing coalition members, and sparked a bizarre period of political schizophrenia.

The first act of personality division came from right-wing Laos leader Yiorgos Karatzaferis. He announced yesterday that he would instruct his 16 members of parliament to vote against the austerity measures he helped negotiate.

“They robbed us of our dignity,” he said, in reference to the troika of Greece’s creditors, the European Commission, European Central Bank and International Monetary Fund. “They degraded us. I won’t tolerate or allow that, no matter how hungry I may be. It is not negotiable that they should want to remove our last trace of sovereignty.”

This left open the question of whether Laos’ four cabinet members would remain. In the event they withdrew from the government, with two of them saying they would vote for the measures.

The bizarre antics of Laos contributed to the broader volatility of the political scene. It also seems to have infected the two remaining coalition members, socialist Pasok and conservative New Democracy, with severe cases of self-contradiction.

“Those who want us to wean ourselves off the addiction of powerful nations, the International Monetary Fund, The European Central Bank, the international markets, are correct,” socialist leader George Papandreou told his 153 members of parliament in a rousing speech. “This is my stance. It is a big ‘no’.”

This is the man who, as prime minister in May 2010, argued passionately in favour of putting Greece under the yoke of eurozone bailouts, which was accompanied by strict austerity terms. It follows, in Papandreou’s logic, that a weaning off borrowed money from overbearing lenders begins with borrowing more.

Not to be outdone, conservative leader Antonis Samaras has sculpted his own impressive about-turn. “We remain true to our positions,” he told his MPs today. “The recipe of the memorandum was wrong. A change of policy is needed… But for these things to have any meaning, for us to be able to talk about an upturn and a policy change, the country has to exist, to stand on its feet.” As a result, he said, his MPs should vote for the austerity package, and any who did not would be stricken from the party ticket come election time.

There is method in the madness. Party leaders have begun their re-election campaign. Even if they are in favour of the austerity package, they have to sound as though they are against it. It is a necessary part of the process of restoring identity to their parties, since no one can in good conscience hurt their constituents for the acquisition of foreign capital. The vote on Sunday night will help secure a 130 billion euro loan without which Greece will go bankrupt next month. Apart from budget cuts it also approves measures designed to boost the competitiveness of the economy and provide liquidity to the financial system.

Yet the loan is a politically poisonous gift. Papandreou is against it because Greece needs to stand proud. Samaras is against it because the recipe was wrong in the first place. So both will vote for it.

Friday, 10 February 2012

Greece in Political Meltdown

Greece's political system appeared on Friday to be in meltdown with several resignations from the cabinet.

The trend started on Thursday evening. Yannis Koutsoukos, socialist MP and Deputy Labour Minister, resigned after it was revealed that the Labour Housing Organisation would be disbanded, which was a major area of his jurisdiction.He has said he will not vote for austerity measures on Sunday night.

A second socialist member of parliament, Pavlos Stasinos, resigned on Friday morning. He was followed by a third in the evening, socialist MP and Alternate Foreign Minister Mariliza Xenogiannakopoulou.She too says she cannot sign onto the austerity measures.

Shortly after, Deputy Defence Minister G. Georgiou also resigned.He is not a member of parliament.

The most bizarre news of the day, however, was the stance assumed by LAOS, the right-wing coalition member. Its leader, Yiorgos Karatzaferis, said his MPs would not vote for the austerirty measures he participated in drafting and approving, along with socialist leader Yiorgos Papandreou and conservative leader Antonis Samaras. Inscrutably, though, he expressed continued support for Prime Minister Loukas Papademos.

The muddled position forced.LAOS' four cabinet members to resign. Two of them will vote for the austerity measures, but two will not.

A number of MPs from socialist Pasok and LAOS has also declared they will not vote for the measures, or for certain measures.

What Austerity Means for the Greeks

The New Athenian talked with PBS NewsHour's Jeff Brown about what the package of austerity measures means for Greek society.

Wednesday, 8 February 2012

Decision Day

Greece's governing coalition is to meet today to sign off on an austerity and reform package they must approve to get a 130 billion euro ($170bn) loan from the eurozone and IMF. Without it the country will go bust next month.

Even though the coalition, comprised of socialists, conservatives and right-wingers has not yet signed off on the entire package, some of the measures have been officially confirmed.

Private sector salaries will be slashed by 20 percent, including the minimum wage, which drops to 600 euro (just under $800) a month before tax. In the public sector, 15,000 jobs will go this year, and ten times that many over four years. Pensions, too, will be affected across the board. Auxiliary pensions will be cut by 14 percent. Officials were still debating yesterday on how to close an 800 million euro hole in the three billion euros' worth of cuts they have to make to this year's budget. One option was to also cut primary pensions, according to a government official.

Unions predict a catastrophic fall in social security contributions and tax revenue and less disposable income on the street. They say the government will have to cut pensions again in months.

The other decision day 

Once the deal is signed this government's job will have been done. Its conservative New Democracy element will champ at the bit to hold new elections, which it originally wanted this month and now wants to see on April 8. Poll numbers explain why. ND, which lost the last election to socialist Pasok, is now polling 31 percent of the popular vote according to today's poll by Public Issue for Kathimerini newspaper. Even though ND has actually fallen from its last election showing of 33 percent in October 2009, it now trounces Pasok, which has plummeted from 44 percent to eight. That doesn't give ND enough seats to form a government on its own, but in a future coalition it would be the senior partner, and Antonis Samaras would likely be prime minister.

There are several things to consider. First, the fractiousness of the next parliament reflects what we expected to happen in 2009. Pasok's sweeping victory then may have been the last hurrah for the two-party system, which has produced stand-alone governments since 1974. Now the disaffection with both "power parties", as the Greeks refer to them, has truly sunk in. This bodes ill for the implementation of the catalogue of concessions party leaders are making today. The coming election will pit current coalition members against each other, and they are unlikely to campaign on affection for the bailout track George Papandreou put Greece on in May 2010.

The second most important development is the precipitous rise of the Democratic Left, a party founded last year by Fotis Kouvelis, now polling a staggering 18 percent. Kouvelis broke away from the reformed communists of the Left Coalition when the thinking section of that party fell foul of its young and immoderately populist leader, Alexis Tsipras. One would like to think of this as a triumph for moderation and discourse, which it surely partly is; but this 18 percent must also be seen in light of two broader developments: the mass exodus of voters from Pasok and New Democracy, which have traditionally held more than 80 percent of the vote between them come election time; and the sweeping bias towards the left through this crisis, that has seen parties left of Pasok rise from a total of 12.1 percent of the popular vote in the 2009 election to a forecast 42.5 percent.

It is not likely to happen, but were the communists and former communists to collaborate, they could just about squeeze a government out of the hypothetical parliament these poll figures form. If the red-blooded communist leaders of the 1940s were alive today, they would consider this vindication for their catastrophic loss during the Civil War, and comeuppance for capitalism. Andreas Papandreou, who founded Pasok, always referred to his 1981 election win as "the third round" of the 20th century struggle between communism and the right, the first being the 1946-49 Civil War and the second the 1967-74 colonels' dictatorship, triggered partly through fear of a communist putsch. This claim annoyed the communists no end, and they jealously fought Pasok's success.

The end of that success and the rumoured extinction of Pasok is the third observation to make about the present political mood. It took Andreas Papandreou just seven years to found the socialist party and bring it to a victory that took Greece by storm. He re-cultivated in a new guise the centre-left political ground his father had bravely carved out of post-Second World War Greece. George Papandreou senior had in turn wrested that political ground from the Venizelist Liberals of the early 20th century, placing it in the hands of his own political dynasty. Andreas tinged it with the vengeful complex of the downtrodden, a complex which seemed to legitimise unmeritocratic clubbishness and embezzlement whose practitioners perhaps saw it as an extension of their party's wealth redistribution policy.

Andreas' social revolution ended in a corruption trial in 1989, but his charisma returned him to power in 1993, his vengeful instincts against the right and New Democracy reinforced. His enlightened son, George junior, attempted to cleanse Pasok of its past sins and recast it as a Europeanist, reformist party, only to see himself running his father's shop from the attic. He retreated behind a circle of advisors and survived two general election losses by bypassing party mechanisms and appealing directly to the public in a November 2007 party leadership vote. But Pasok now seems to have confounded itself beyond repair. Its reformist wing has not prevailed over the populists who light candles to Andreas.

That means an opportunity as well as a loss. A large and important section of urban middle class Greeks is in search of a European-oriented, reformist and humane political force. The migration from the post-1974 parties has begun. The leftists are claiming it for now, but make no mistake - these voters are up for grabs, and they will alter the political landscape of Greece when they find their leader.

Sunday, 5 February 2012

Greece's Moment of Truth

A version of this post aired this morning on The Rundown, PBS NewsHour's blog.

The Greek government declared on Saturday that it had reached partial agreement with its euro area creditors on a 130 billion euro bailout package. But a gulf of differences remains, with only a day of talks to go.

“We’ve effectively agreed on how to refinance and restructure the Greek banking system, the course of the privatization programme, and a number of institutional and structural changes,” Finance Minister Evangelos Venizelos said. He called the talks “extremely difficult and delicate”.

Greek and European banks would be given roughly 40 billion euro of Greece's second bailout package to refinance after taking massive losses on Greek debt. The separate agreement for the writedown by banks is, according to the government, largely concluded. 

“The distance between a successful outcome and a dead end… is very, very small,” he said. 

If Greece fails to agree to a series of austerity and reform measures by Sunday night, it may not be technically possible for governments to produce the money and for banks to carry out a bond swap before March 20. That is when Greece faces 14.5 billion euros in bond maturities it cannot afford. Non-payment would then create the eurozone’s first default. 

The two biggest areas of remaining disagreement, Venizelos said, were over creditor’s demands that Greece reduce its private sector salaries and make further cuts in public spending this year.

Greece's so-called troika of creditors (European Central Bank, European Commission and International Monetary Fund) wants the minimum wage of 751 euro a month gross to fall by at least 10 percent. It wants bonuses amounting to another 15 percent of salary to go.

Talks between unions and employers on a voluntary reduction in salaries reached an impasse yesterday, meaning that the government will now have to circumvent union talks with an act of parliament. If that happens, say the unions, they will respond ferociously. “There will be a legal challenge in court, strikes, demonstrations and protests,” said an official from the General Confederation of Greek Labour involved in the talks.

That would place further pressure on the already strained governing coalition of socialists, conservatives and right wingers. Prime Minister Loukas Papademos met with the leaders of the three coalition parties on Saturday. They will have to sign written commitments to stick to a list of austerity and reform measures by Sunday. The commitment would bind them even after an election, perhaps the most contentious condition of the bailout. 

The centre-right parties are already taking an anti-austerity line as Greece enters its fourth year of recession and unemployment stands at 19.2 percent.

Greece's recession last year may have been 6.5 percent of GDP, half a point higher than thought, estimated the Centre of Planning and Economic Research (KEPE), a respected think tank, earlier this week. That would mean a 13-point total shrinkage of the economy over the past three years, with KEPE estimating an additional 3.42 percent recession this year and zero growth in 2013.

Conservative shadow finance minister Christos Staikouras yesterday said that Greece’s inability to hit deficit tax revenue targets and reduction targets “have made more urgent than ever the re-evaluation and modification of certain policies that have proven economically ineffective.”

Greece faces an almost impossibly tight timetable before a February 13 deadline. During the week the European Commission and euro area national governments must begin the process of releasing money to finance a roughly 100 billion euro writedown of privately held Greek debt. By Monday 13 February, Greece must begin to exchange privately held bonds it cannot honour with new bonds that carry longer maturity terms and lower interest.

Friday, 3 February 2012

Wage Talks Head for the Wall

On Monday, Greece begins its final week of negotiations before a February 13 deadline to agree on a package of austerity and reforms that would open the way for a 130 billion euro bailout loan. Without that loan from its eurozone partners, Greece will go broke on March 20, when it will find itself unable to honour two bonds worth 14.5 billion euro. And February 13, says the finance ministry, is the latest time by which it can start a bond swap with private investors who have agreed to forgive a chunk of Greek debt.

As things stand, the prospects of making that deadline are not inspiring.

Talks between unions and employers on a voluntary reduction in private sector salaries are at an impasse. Today they sent Prime Minister Loukas Papademos a letter stipulating that salary cuts are not agreeable to them. They say real private sector salaries have fallen by 14.3 percent in the least two years. Instead, they want the government to address obstacles to entrepreneurship such as bureaucracy, taxes and land zoning.

Greece's troika of creditors (European Central Bank, European Commission and International Monetary Fund) wants the minimum wage of 751 euro a month gross to fall by at least 10 percent. It wants bonuses amounting to another 15 percent of salary to go. It also wants sectoral wage agreements to be replaced by company wage agreements, effectively obviating the traditional role of unions. To get all this done, the government will now have to circumvent union talks with an act of parliament. If that happens, say the unions, they will respond ferociously, with both a legal challenge and strikes and protests.

But that is not all. The troika also wants commitments to reduce auxiliary pensions by an estimated 35 percent, and the government to shed 150,000 public sector employees by 2015, in addition to the 200,000 who have already gone in the last two years.That would stir the civil servants' union, ADEDY, from its temporary calm, and bring the country's two main labour movements onto the streets of the capital.

The refusal of social partners to share the government's reform burden through voluntary measures means that the political cost will be one-sidedly borne by the coalition government. But it is doubtful whether even its overwhelming majority of 252 out of 300 seats can withstand popular anger. Many MPs are wary of committing to the troika's goals. The reason is simple. Greece has entered a recessionary spiral that is being exacerbated by the austerity measures. Many people who agree with the need to reduce the size and cost of government disagree with the troika's timing and methods.
Greece's recession last year may have been 6.5 percent of GDP, half a point higher than thought, estimated the Centre of Planning and Economic Research (KEPE), a respected think tank, earlier this week. That would mean a 13-point total shrinkage of the economy over three years, with KEPE estimating an additional 3.42 percent recession this year and zero growth in 2013.

What that means in human terms, says KEPE, is unemployment of over 20 percent this year and more than 22 percent in 2013. The General Confederation of Greek Labour estimates even more - 1.6 million unemployed this year, leading to a shortfall of eight billion euro from pension funds.

The anti-recessionary, anti-austerity argument is gaining ground among Greeks on the street. Many believe the troika presented Greece with a misguided plan, or, worse, take the conspiratorial view that it somehow wanted Greece to fail. The power of this argument should not be underestimated. When proposals such as relieving Greeks of control over their budget are leaked, even educated people begin to wonder whether the eurozone is trying to provoke Greece into a voluntary withdrawal.

Thursday, 2 February 2012

Election Season Opens as Coalition Begins to Fray

The political rhetoric in Athens heated up sharply this week following Monday's European Union summit in Brussels. The three ruling coalition members are posturing and drawing lines in the sand, marking an end to the period of docile coexistence that prevailed for a few short months after the 'armistice' government was formed on November 11.

Even before the summit, New Democracy pitted itself against lowering the minimum wage, or the axeing of 13th and 14th salaries in the private sector, siding with unions. Eurozone creditors stuck to their guns and said Greece must reduce payroll costs as part of its competitiveness-boosting reforms. Since the summit New Democracy has reaffirmed its intention of investigating socialist Pasok's deficit figure for 2009 - the year that Greece entered Excessive Deficit Procedure for the third time and effectively began to rule itself out of money markets. Today its spokesman, Yannis Mihelakis, said the current parliamentary constitution "no longer reflects the will of the people."

Right-wing Laos has made even more noise in recent days. It threatened to pull out of the coalition over a mooted legalisation of drugs - its second secessionary threat this year. Yesterday its leader, Yiorgos Karatzaferis, sent European Parliament a letter asking for an intervention in the austerity measures the eurozone is requesting of Greece. He said they amounted to an "economic dictatorship" and risked "a popular eruption". He also accused the eurozone of violating Inernational Labour Organisation rules, and European treaties and principles.

Inter-party animosity peaked today with former prime Minister George Papandreou's speech to his bloc of deputies in parliament. He lashed out against "New Democracy's lies" and enumerated past conservative sins that bloated the deficit. Among other things, he accused ND of doubling public pharmaceutical expenses, from 2.4 billion euro in 2004 to 5 billion in 2009. In what sounded like an increasingly electoral speech as it progressed, he listed Pasok's pro-transparency resume, including the creation of Greece's Economic Crimes Office (SDOE).

New Democracy's response called Papandreou "brazen" and said, "His policies were the reason why people lost in two years what they built in 20."  

In truth the armistice government was never entirely at peace. New Democracy has been sniping at Pasok ministers from the sidelines, notably Environment and Energy Minister Yiorgos Papakonstantinou for attempting to award large advertising contracts; Health Minister Andreas Loverdos for the government's arrears in paying for procurements; and Development Minister Mihalis Chrysohoidis for failing, by his own admission, to read the original memorandum of austerity measures in 2010. But the fact that  Papandreou today stood above the trenches and fired back means election season has unofficially opened. The coalition parties will likely remain in a coalition designed to coax a new, 130 billion euro bailout out of the eurozone. But they will be increasingly at odds.

There are two reasons for this. An election is inevitable this year because the coalition is unstable. No party wants to completely align itself with the European-inspired austerity and reform programme, eyeing electoral gains from railing against it as a necessary evil; and party discipline is breaking down as many parliamentary deputies are beginning to revolt against individual articles of bills (dozens of deputies refused to vote for a liberalisation of pharmacy opening hours on January 26). Many Pasok MPs, particularly, have suffered a breakdown in relations with their constituencies.

A worse case scenario is still possible. Behind the electoral posturing, there really could be a political failure to commit to the reforms necessary for a second bailout, in which case Greece will prepare for disorderly default on March 20, when a 14.5 billion euro bill in bonds come due.