Monday, May 14, 2012

Will Centrists Save Greece and Eurozone?

A follow-up to my previous comment on the Mother of all risks in 2012. Ekathimerini reports, New proposal leads to further party talks on Tuesday:

Greece’s last-ditch efforts to create a government following the fragmented result of the May 6 elections is due to continue on Tuesday after President Karolos Papoulias proposed on Monday that parties discuss the possibility of supporting an administration of “personalities,” or technocrats and respected political figures with broad appeal.

Papoulias put forward his proposal during Monday night’s talks with New Democracy leader Antonis Samaras, PASOK chief Evangelos Venizelos and the head of Democratic Left, Fotis Kouvelis. The three leaders were called in after discussions to form a unity government on Sunday failed as a result of the Coalition of the Radical Left (SYRIZA) declining a role in the administration.

SYRIZA, which opposes the European Union and International Monetary Fund loan deal, said it was not satisfied that a four-party government would be committed to ending the austerity policies imposed in Greece since 2010.

Although ND, PASOK and Democratic Left have 168 seats in Parliament, there is a feeling that SYRIZA’s support would be needed for greater political legitimacy. It emerged that during the talks between Samaras, Venizelos and Kouvelis last night, the idea of just the three parties forming a government was set aside in favor of Papoulias’s suggestion that as many political groups as possible support a so-called “government of personalities.”

As a result, a new meeting between all the leaders of parties that entered Parliament following the May 6 elections, apart from the far-right Chrysi Avgi (Golden Dawn), has been called for 2 p.m. today. It has been reported that the leader of the nationalist Independent Greeks, Panos Kammenos, will meet with the president a little earlier after Samaras asked Papoulias to look into whether there was a possibility of his party joining a unity government, thereby negating the need for an administration of technocrats to be formed.

There was a mixed reaction from the three leaders who took part in yesterday’s talks to the idea of a technocrat-led government but all agreed that such an administration would need broad support.

“The effort to form a government is continuing,” said Samaras. “It needs to have the broadest possible support. It is not so important who the personalities are but which parties support the government.”

“Under normal circumstances, governments of technocrats or personalities are not formed,” said Venizelos. “But when we are faced with such a crisis, such a deadlock, parliamentary support for such a government must be as broad as possible.”

Democratic Left leader Kouvelis was the least enthusiastic about the prospect of such a government being formed, insisting that an administration made up of as many parties as possible was a better option. “This is a defeat for politics,” he said.

SYRIZA leader Alexis Tsipras is expected to take part in Tuesday’s meeting after choosing not to attend the talks on Monday. Speaking to the Athens-Macedonia News Agency, Tsipras said that he plans to build on his party’s success in the May 6 polls, when it more than tripled its vote from the previous elections.

“Today’s SYRIZA bears no relation to the SYRIZA of May 5,” said Tsipras. A survey by Public Issue for Kathimerini indicated that about half of the 16.8 percent of voters who backed SYRIZA just over a week ago had voted for New Democracy or PASOK in the 2009 elections. Tsipras said that he wanted to keep hold of these voters in the next elections and broaden its appeal. He said the structure of the party would change and that SYRIZA would take the necessary legal steps to ensure it would be able to profit from the 50-seat bonus given the leading party in elections.

As a coalition, SYRIZA does not currently qualify for the bonus. The party, however, remains committed to changing the electoral system from one of reinforced proportionality to proportional representation.

I am convinced that the majority of Greeks who voted for SYRIZA are unemployed youth who are absolutely disgusted with the two main parties that have governed for the last 30 years.

The problem is that Alexis Tsipras has his agenda and he's playing a high stakes game with the country's economic future. If Greeks think that voting for SYRIZA is the solution to their problems, they should just vote for the Communists and go back to the Dark Ages!

The unemployed, disenfranchised youth that didn't vote for SYRIZA, voted for the right-wing extremists, the Golden Dawn ('Chrysi Avgi') whose leader just got blasted by the government for claiming Nazi concentration camps did not use ovens and gas chambers to kill prisoners during the Holocaust.

In both cases, this is a protest vote which is based on emotions, frustration and hopelessness. It's not representative of the will of most Greeks who want to be part of eurozone but want the focus to shift from austerity to jobs and growth.

Tonight, there is something cooking in Athens. Ekthimerini reports, Centrist leader seeks to marshal pro-European forces:

The leader of the liberal Democratic Alliance, Dora Bakoyannis, on Monday made a broad appeal to all “pro-European forces” to cooperate to secure the country’s future in the eurozone.

Addressing the members of her political council, the former foreign minister and mayor of Athens emphasized that the current priority was for a new government to be formed, noting that the parties elected to Parliament on May 6 “have an obligation to give Greece a government.”

In the event that they fail, Bakoyannis said she would seek to marshal “pro-European forces» into a coalition irrespective of their position in the political spectrum. “If it proves impossible,” she said, referring to the party leaders’ efforts to form a government, “I call on all the forces that believe Greece’s future is in Europe to cooperate.”

Bakoyannis is also aiming to boost the fortunes of her party which failed to enter Parliament on May 6 and is reportedly facing defections of some deputies to conservative New Democracy.

Neither Democratic Alliance nor ND would confirm reports of exploratory talks between the two parties.

But talks between Bakoyannis and Stefanos Manos, the leader of Drasi, another small liberal party, were said to be progressing well ahead of likely elections in June. Initially, talks between Bakoyannis and Manos, who are both former ministers, are said to have foundered as both wanted a leading role.

I must admit, I like Dora Bakoyannis. Some of her economic ideas (like the flat tax) are flimsy, but she's clearly very familiar with what's at risk if Greece exits the eurozone and she's rightly doing everything she can to avert such a disaster.

She also understands that Greece needs deep structural reforms. The size of the public sector is an aberration and austerity has disproportionately hit the private sector much harder than the public sector.

Of course, being the daughter of one of the most despised prime ministers of Greece, Konstantinos Mitsotakis, doesn't help her cause to get elected with any serious majority. But Bakoyannis is sharp (fluently bilingual) and she might very well play a pivotal role in forming a pro-European coalition government. I would seriously consider appointing her Prime Minister of Greece during this crucial time.

Most Greeks overwhelmingly want to stay in the eurozone and they do not want to go to elections again in a month. They want a government now and they want all parties to work together to govern the nation. I remain hopeful that something will be worked out overnight and markets will welcome the news.

Even Charles Dallara, managing director of the Institute of International Finance, has insisted that Greece’s exit from the eurozone is not inevitable and called on the country’s leaders to find common ground with their eurozone counterparts.

Finally, Ian Bremmer, president of Eurasia Group and author of Every Nation for Itself: Winner & Losers in a G-Zero World, was a guest on Yahoo's Daily Ticker stating that Europe is not about to implode:

U.S. stocks stumbled out of the gate and major European bourses suffered heavy losses Monday after another weekend of negative headlines in the eurozone.

First, Angela Merkel's Christian Democratic Union party suffered big losses in a local election for the second straight week. In North Rhine-Westphalia, Germany's largest state, the CDU received just 26% of the vote while a coalition of left-leaning Social Democrats and Green party candidates received over 50%.

The election results raise the risk that Merkel's government will be ousted in the general election next year and embolden newly elected French President Francois Hollande to push harder for pro-growth measures in the EU vs. the austerity favored by Merkel.

Second, Greek party leaders failed to form a coalition government, raising the possibility of another national election in Europe's most-troubled economy. The political crisis comes amid rising market expectations that Greece will exit the eurozone sooner rather than later.

Notably, NY Times columnist Paul Krugman mused this weekend that Greece could abandon the euro as soon as "next month," which he speculates could be the beginning of the "end game" for the euro itself. "And we're talking about months, not years, for this to play out," he writes.

In the accompanying video, Henry and I discuss these latest euro-developments with Ian Bremmer, president of Eurasia Group and author of Every Nation for Itself: Winner & Losers in a G-Zero World.

Generally speaking, Bremmer believes most observers have "gotten over their skis" about the meaning of recent elections in Germany and Greece.

"If you take a look at Europe with a fresh eye...overwhelmingly the dominant meme in Europe is austerity, that's where we are," he says.

"Is Germany now going to start writing big checks, domestically or internationally? Absolutely not."

As for Greece, Bremmer believes they're "playing chicken" with the Germans and the EU is "still firmly in 'kick the can' territory" when it comes to Greece.

"These two sovereign cars are traveling pell-mell at each other on a little road and they're all saying 'we're not going to move'," Bremmer says of the Greeks and the Germans. "But I don't know why the only people who could possibly blink and end up in the ditch are the Greeks. At this point, there's still some road. And I think there's more road than most people think."

Furthermore, Bremmer "would not presume you're going to get a worse outcome" in the next round of Greek voting, noting polls show 70% of Greeks support staying in the eurozone. Voter turnout was low in the elections two weeks ago that threw the nation into political chaos.

As for the specifics of Kruman's latest forecast, Bremmer could barely restrain his criticism, calling the famed economist and columnist "disingenuous."

"Krugman is a very smart guy and he knows better than to manipulate people ideologically," Bremmer says. "The notion the eurozone is going to suddenly implode? No CEO with real money on the table today in the U.S. investing in Europe actually believes that. It's not actually credible."

To be fair, Krugman isn't the only observer speculating about the "end game" for Europe, although his timetable is quite aggressive. And in the essence of fairness and equal time, The Daily Ticker is extending an invitation for Krugman to respond. Stay tuned!

Listen to Ian Bremmer below. I agree with Bremmer, Krugman is very smart and dead right about the risks of austerity, but his apocalyptic forecast on Europe is way off. And all of you who think Greece can easily return to the drachma and this will cure their economy are equally disingenuous and way off. Nothing can be further from the truth. A return to the drachma will be disastrous.

UPDATE: unfortunately, Greeks are heading back to the polls.

No comments:

Post a Comment