With apologies to Wisconsin, we’re a little less than two weeks away from the most important election of the year. It’s happening in Greece, where you have a contest that will likely determine the future of that country, and by proxy the future of Europe.
The far-left Syriza party and the center-right New Democracy have been locked in a tight struggle for weeks in this second-round Parliamentary election. And there are real consequences at stake. New Democracy will probably go along with the bailout terms they helped structure, and pursue more austerity in exchange for timely debt payments from European leaders. In recent weeks, New Democracy has said they want to renegotiate parts of the bailout deal, but I suspect they’re just looking for a fig leaf. But Syriza will seek a full renegotiation on the bailout, daring Europe to try and kick Greece out of the euro.
In an hourlong news conference, (Syriza leader Alexis Tsipras) described a dozen measures he would take if elected, ranging from extending unemployment benefits to nationalizing banks and delaying payments to creditors. He said he would replace the bailout plan with “a national regeneration plan,” adding that the goal was to reach a “just and viable European solution.”
“We don’t claim that there is plenty of money,” he said. “Greek people are not asking for money. They are asking for work and the ability to make a living.”
Three new polls were published on Friday in Athens newspapers. Two showed Mr. Tsipras’s party, Syriza, and the New Democracy party basically tied, while one put Syriza slightly ahead of the conservatives. In the Public Issue poll, published in Kathimerini, Syriza is backed by about 32 percent of the voters and New Democracy by 26 percent. In contrast, according to the poll conducted by Kapa Research for Ta Nea, 26 percent said they would vote for New Democracy, statistically insignificant from the 24 percent for Syriza. Similarly, the Rass poll conducted for Eleftheros Typos found the voters closely divided: about 27 percent for New Democracy and 24 percent for Syriza.
Greek law prohibits polls in the last two weeks of an election, so this is all the direction we’re going to get. If you average everything together, you have what amounts to a dead heat: 26.6 for New Democracy, 26.6 for Syriza. New Democracy’s ceiling is 26-27%, while Syriza jumps ahead or behind that point.
It’s notable that New Democracy and Pasok, the center-left legacy party, are both edging more toward Syriza’s way of thinking, not only on renegotiation of the bailout terms but other issues like unemployment benefits and minimum wage. That, more than polls, shows who has control of the election at this stage.
Tsipras is still the only one talking about an annulment of the bailout deal, however. And he wants to increase public spending by 7% over the demands of Eurozone leaders. What’s more, rather than just looking at the balance sheet and trying to get to numbers, he wants to reverse programs that strip wealth from the lower classes because the revenue is easier to collect. He wants to lower the value-added tax, for example, saying that “We must stop taxing poverty in this country and start taxing the wealthy who evade tax.”
This is an inevitable consequence of an outside actor forcing what amounts to a depression on a sovereign nation. George Soros outlined brilliantly this weekend at the Festival of Economics how the European monetary union without a political union was always doomed to failure. The European Central Bank controls the money supply, and the member countries must live under those terms. This creates a crisis when countries in the Eurozone have different monetary needs.
Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries. This is having far reaching political implications to which I will revert.
It took some time for the financial markets to discover that government bonds which had been considered riskless are subject to speculative attack and may actually default; but when they did, risk premiums rose dramatically. This rendered commercial banks whose balance sheets were loaded with those bonds potentially insolvent. And that constituted the two main components of the problem confronting us today: a sovereign debt crisis and a banking crisis which are closely interlinked.
Soros believes that the Greek people will become “sufficiently frightened” by the prospect of a Eurozone exit that they will vote in the legacy parties. But he adds that the terms of the bailout are so onerous that “the Greek crisis is liable to come to a climax in the fall.” He says Europe, and really Germany, has three months to find a solution. In this sense, the outcome of the elections matter less. However, I’m not so sure that Greeks will find themselves that afraid. They already sit in depression. It’s hard to threaten the man who has nothing.