Thursday, June 21, 2012

Greeks Vote for Pro-Bailout Parties in Election

FT: New Democracy Ekes Out Win in Greece
NYT: Supporters of Bailout Claim Victory in Greek Election
WSJ: Greeks Back European Bailout

On June 17, 30% of Greek voters turned out to vote for the New Democracy Party, a conservative party which supports unity with Europe and bailout plans for the Greek economy. The New Democracy Party is set to govern in coalition with Pasok, a socialist party, and the Democratic Left Party. Together, the parties hold 179 of the 300 seats in the Greek parliament.

The election comes after five consecutive years of recession, mass unemployment (currently at 21.9%), and severe cuts in wages and pensions. The struggling economy has been exacerbated by austerity measures mandated by European leaders in previous European-led bailouts of the Greek economy. The election follows an earlier election held May 6 in which the New Democracy Party won, but it was unable to garner enough support to reach the needed majority of seats required to govern.

Voters saw the election as a choice between the New Democracy Party, which supports a European-led bailout, and Syriza, a radical left-wing party which opposes the bailout. Although the New Democracy victory will likely delay, at least for now, any exit from the Eurozone (the countries utilizing the Euro as their currency), analysts are skeptical of whether the new coalition will be able to halt Greece’s economic decline.

First, European leaders distrust the likely new Prime Minister, New Democracy’s Antonis Samaras. Over the last two years, Samaras has been reluctant to support previous bailouts, and many European leaders blame him for Greece’s economic mismanagement which brought on the current sovereign debt crisis.

Second, analysts are not confident the new coalition will be able to govern effectively. The three parties that make up the coalition have never governed together before, and analysts fear the new coalition will not be strong enough to effect meaningful fiscal changes. Moreover, the government lacks broad popular support, which will make substantial fiscal reform difficult.

Still, the financial markets initially reacted positively to the news of the Greek election. Asian stocks, U.S. stock futures, and the Euro rose in value when the results began to indicate a New Democracy victory. However, this optimism was short-lived. U.S. stocks were stagnant on Monday, and investors did not show much confidence in the Eurozone. Investors’ lack of confidence in the Euro was evidenced by investors selling off Spanish and Italian bonds, sending those countries’ borrowing costs even higher.

The next step for the New Democracy coalition government is to fulfill its pledge to restructure the €174 billion bailout deal it agreed to in March. European leaders have insisted that Greece make an additional €11.5 billion in budget cuts before it will extend its loans under the bailout deal, but likely Prime Minister Samaras has insisted on bailout concessions, including debt restructuring, throughout his campaign.

For Greeks, the election may bring about much-needed stability and leadership to the country. However, any hopes that the election will quickly solve the country’s enduring economic problems are misguided.

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