Last week’s Greek national election results were not entirely surprising; however, the fallout since has thrown new uncertainty over the country’s willingness to follow the strict austerity measures enforced upon them, and more worryingly, their future as part of the Eurozone.
Since the results of the Greek election were published the hour-to-hour messages coming through the newswires have been as changeable as the British weather. One moment there is a drought and a paucity of information, the next an inundation of news and rumour as to whether a government will form or how long it will be before Greece exit the Euro. What this all adds up to is a huge amount of uncertainty that has been extremely damaging for both Greece and the Eurozone.
The votes in Greece were split relatively evenly among seven parties, with the New Democracy party gaining the highest at 18.85% and at the other end, the Democratic Left gaining 6.1%. Perhaps most surprising and concerning result was that of the neo-Nazi party Golden Dawn which gained 6.97% of the vote. Despite President Papoulias’ multiple efforts he has been unable to get enough of the parties to agree an alliance and therefore it has not been possible to form a majority government.
European leaders, meanwhile, have been scrabbling around trying to ascertain what this means for the Euro and the EU more widely. The election of Mr Hollande and the defeat of Ms Merkel’s Christian Democrats in the bellwether state of North Rhine-Westphalia suggest that there is a shifting tide against austerity. This could be the saving grace that prevents a default and keeps Greece in the Eurozone; if, of course, this is the desired policy of European countries.
Britain is already making plans to deal with the Greek exit. Bank of England Chief, Mervyn King has warned that the Greek default and inevitable departure from the Euro could cost the UK economy $1tn. British Prime Minister David Cameron has supported Mr King’s warnings and is calling for Hollande and Merkel to show that ‘either Europe has a committed, stable, successful Eurozone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the Eurozone, or we are in uncharted territory which carries huge risks for everybody.’ Perhaps Mr Cameron would be kind enough to assist Hollande and Merkel in achieving this. There is a saying in Britain about people in glass houses not throwing stones.
At least we now have some certainty. Greece has called new elections for 17th June in the hope that some kind of stability will be achieved. In the meantime an interim government headed by Panagiotis Pikramenos, a high court judge, will attempt to navigate the country for the next month. It may not be a stability that pleases everyone, but at this point any comfort may be welcomed.
The next election is already shaping up to be a battle between austerity and non-austerity. Pasok and New Democracy, the two parties that took a hammering at the election due to being blamed for enforcing the IMF and Eurozone austerity measures are pitched against Syriza, the surprise package from the recent elections. The leader of Syriza, Alexis Tsipras, has condemned the austerity package as ‘barbaric.’ Early indications suggest that Syriza are consolidating their gains. If they are able to position themselves as the majority party after the next election then a Greek default and exit from the euro appears inevitable.
Over the next months European leaders will have to decide whether they wish to retain Greece as part of the Eurozone. There will have to be a shift from austerity to growth, or at least indications that this will happen. This will require Ms Merkel to change her plans. Fortuitously for her the election of Francois Hollande and domestic problems may provide her with the platform to make such a shift.