Tuesday, 14 October 2014

Political storm clouds again gather over Greece

Greece may be approaching a new political and economic crisis, reflected in nervous markets. Greek 10-year borrowing costs jumped more than two points this week to 8.96 percent on October 16. During the same period, the Athens Stock Market fell by a third, to 869 points from 1,260. 

Conservative party MP Adonis Georgiadis blamed the developments on statements by the left wing main opposition party, Syriza. "When the Syriza government comes to renegotiate our loans, which will happen soon, the question of at least a 50 percent writedown of the country's public debt and of repayment of the remaining part on the basis of growth will come up," Yiorgos Stathakis, Syriza's shadow development minister is quoted as having said on Monday. 

On the same day, the conservative-led government approached the Eurogroup with a proposal to extricate itself from the International Monetary Fund's adjustment programme at the end of the year, when he Eurozone's period of oversight ends, rather than mid-2016. 

Achieving this could remove the opposition's main stick - the country's memorandum of austerity and reform. 

The memorandum mandates fiscal austerity, banking reform, economic reform and political transparency, some of which has been carried out, but much of which remains to be done. It has become a symbol of lost sovereignty and social disintegration. 

At the same time, the government is trying to negotiate a rescheduling of debt with its Eurozone partners, which would allow it to lower its annual premium and achieve a full budget surplus, not just a primary surplus. Greece achieved a 2.9bn euro primary surplus in 2013, and expects a 6.1bn euro primary surplus this year. 

All this is rendered urgent by a looming general election. This is likely by next April, and possibly before. Parliament must elect a new president by the end of March with a three-fifths majority - which is currently beyond the ruling coalition. Failure to do so would trigger an election. Parties are already jostling for alliances and beginning the process of drafting ballots. 

The political mixture is as toxic as it was in the last general election in 2012. The government is reform-fatigued and voters are tax-fatigued, so while the country may still be on track to achieve 0.6 percent growth this year, this may no longer be enough to make businesses or taxpayers happy. In fact, the mild rate of improvement may work against the ruling coalition of socialists and conservatives. 

The economy is improving fast enough to allow people to feel they can risk a change of government (polls now put Syriza ahead by several points), but not fast enough to feel optimistic about staying the present course (recent polls show that half of Greeks believe the economy and unemployment will worsen, while only about one in ten expects improvement). 

The slowness of the recovery is also failing to lift the prospects of the less fortunate, creating a two-tier society. September labour ministry data revealed a marginal rise in unemployment, and that six in ten of the jobs that were created are not full-time. According to the Hellenic Statistical Authority, almost four million people are at risk of poverty or social exclusion - 36 percent of the population. A large proportion the the population cannot eat protein every other day, pay utility bills or own a colour TV.  

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