Greeks Form Coalition to End Political Stalemate
June 21, 2012
By: Garrett Nada | Printer Friendly
On June 17, Greeks voted in a new parliamentary election after several rounds of negotiations following the May 6 vote failed to produce a government. Extremist parties on both the left and the right had performed unusually well in the May 6 election, which made coalition negotiations particularly difficult. However, in the June 17 election, the fringe parties lost support.
According to the BBC and the Greek Interior Ministry, the two far-right parties, the Golden Dawn (a neo-Nazi party) and the Independent Greeks, lost a combined 16 seats in the June election compared to the May results. Likewise the Communist Party of Greece previously won 26 seats but only secured 12 seats on June 17. The center-right New Democracy party gained 21 seats for a total of 129, enabling it to form a centrist coalition with the moderate socialist Pasok party and the Democratic Left party. The coalition includes 179 seats in the 300-seat parliament.
On June 20, Antonis Samaras, the head of the New Democracy party, was sworn in as Greece’s new prime minister. According to the BBC, Samaras is an economist by training but has been involved in politics for 35 years. He was first elected to parliament in 1977. At the same time, Chairman of the National Bank of Greece Vasilios Rapanos was named as the new finance minister. Rapanos is also an economist and participated in negotiations on Greece’s debt restructuring in early 2012. He and the new government face serious challenges as the Greek economic crisis worsens. The coalition is hoping to buy Greece another two years to meet the fiscal targets set by the other euro zone countries.
Although it seems that Greece will remain in the euro zone for now, Reuters reported that Morgan Stanley Capital International (MSCI) may still downgrade Greece to the status of an “emerging market.” Although MSCI is typically slow to upgrade a country’s status, it has never downgraded a country’s status. The head of index management at MSCI, Sebastien Lieblich, told Reuters that “Greece would have quite a long way to go before it fell below the threshold, but these days anything is possible.”
Reuters’ analysts noted that a sharp devaluation of Greece’s currency could quickly pull the country below the required MSCI benchmark of an annual per capita income of $15,000 US. However, Greece would need to abandon the Euro and introduce a national currency in order to devaluate. For now, the new ruling coalition in Greece seems committed to staying in the euro zone. On the other hand, devaluing a new national currency would make it easier for Greece to pay off its debt and perhaps attract investors. This option may look increasingly tempting if Greece cannot buy itself more time to meet its financial obligations to the euro zone countries.
One member of Syriza, the Greek opposition party, wants to fundamentally change the relationship between Greece and the euro zone. Reuters interviewed Manolis Glezos, an 89 year-old leftist who wants Greece to renegotiate the €130 billion bailout package with Germany. He claims that Germany never fully compensated Greece for the Nazi occupation of Greece from 1941 to 1944 and a loan that Greece was forced to make in 1941 to fund the Nazi war effort. By his calculations, the total adjusted value of reparations for the occupation and loan total €162 billion without interest, €32 billion more than the bailout package. In April, the German Foreign Ministry responded to Glezos’ allegations, stating that Germany had “went beyond its legal obligations” in paying more reparations to Greece than was required. Glezos used extreme language in the interview with Reuters, even asking rhetorically if Angela Merkel wants “revenge on the Greek people” for rejecting the Nazis. His party will dominate the opposition in parliament. Syriza took 71 seats in the election, second only to the New Democracy party.
Although the national debt is an important issue, Greek citizens are extremely concerned about the status of their pensions, which were cut in March 2012. Bloomberg reported on strikes in the public transportation public sector in reaction the previous cut. The new government will likely adopt measures to satisfy the angry public, which has suffered from two years of strict austerity measures. According to the BBC, the coalition parties will attempt to prevent further cuts to pensions and salaries. The New Democracy party made a campaign promise to slash the top personal income-tax to 32 percent from 45 percent and the value-added tax on restaurant meals. However, it is not clear if Pasok and the Democratic Left support these moves. The economic crisis will likely dominate the agenda of the incoming parliament for months to come.
For previous news on Greece, please see:
Radical Parties Make Significant Gains in Greek Elections
BBC - Antonis Samaras sworn in as new Greece prime minister
BBC - Greek coalition talks: Key players
Bloomberg - Greece Parliament Approves Pension, Health Cuts in Race for Second Bailout
Reuters - Analysis: Greece may still become an emerging market - again
Reuters - Sums are wrong: Germany owes Greece, leftist says
The Wall Street Journal - Greece Reaches Deal to Form Government