ANALYSIS:The big question now is whether the bailout arrangements made in February can be made to stick, writes ARTHUR BEESLEYin Brussels and DAMIAN MAC CON ULADHin Athens
THE GREEK election result marks a severe test for the country’s second EU-IMF bailout, one with profound implications for the country’s membership of the euro zone and for Europe itself.
The new bailout took many months to agree, leading to prolonged disruption in Europe’s shaky bond markets. In the process, Greece’s private creditors incurred a loss of more than €100 billion on their holdings of the country’s debt.
Although full results are still awaited, the big question now is whether the arrangements made in February can be made to stick. That cannot be considered a strong likelihood at this point. All along, however, the view in Brussels and beyond was that that new rescue package would be scrapped if the Greeks fail to execute the plan to the letter.
This is high-wire stuff, raising the prospect that Greece might quickly run out of the cash and default on its remaining debts. It would also throw the country’s membership of the euro into question again.
The European authorities are adamant, however, that there can be no wavering from the preordained austerity path. “If Greek voters were to vote for a majority that does not honour those agreements, then Greece will have to bear the consequences,” said German finance minister Wolfgang Schäuble.
Ejecting Greece from the euro is something Europe would be reluctant to do. The fact remains that such a departure would represent a huge step into the unknown with significant contagion risk for the other members of the currency.
Under present law, indeed, no country can leave the single currency without leaving the EU itself.
In many ways, however, the election can be seen as a referendum on the bailout, with many small parties opposed to it outright. Although some Greek parties want to renegotiate the programme, the view in Brussels remains that the new government would have to find a new €1 million cut for every €1 million cut it does not make. For Greece, of course, the cuts are quantified in billions.
The threat thrown up by the election is that the Greek people appear not to have given a majority to the two parties who struck the deal with Europe and the IMF and who campaigned to execute the plan.
The first is the Pasok socialist party, which led the last government before caving in under the pressure of the original, unsuccessful bailout. The second is the conservative New Democracy party, which joined a caretaker unity coalition with Pasok under technocrat premier Lucas Papademos to negotiate the second rescue.
These parties are arch foes but the crisis has changed their relationship.
New Democracy won the most seats as expected, but it was always going to need Pasok’s support to rule. Anti-bailout parties are in the ascendant as voters punish both parties, so Pasok’s support is not going to be sufficient to carry its bigger rival over the line.
The issue is complicated by the idiosyncrasies of the Greek political system. Parliament comprises 300 MPs, but the first party past the post gets a 50-seat bonus. In short, New Democracy and Pasok needed about 38 per cent of the vote for an absolute majority. They were far from that last night.
Even if they do manage to cobble together a coalition with others, they would be charged with implementing an economic programme that most Greek voters rejected. That raises fundamental problems for the stability of any such administration.
Although the bonus system was designed to make single-party government easier, the crisis has upended Greek politics. Polls before the election suggested voters would send up to 10 parties to parliament. That last happened in 1950. Pasok aside, only two minor neo-liberal parties would back a pro-bailout government. Their enthusiasm for reform is not shared by voters, however, and they are unlikely to enter parliament.
That leaves the others, a ideological ragbag spanning the spectrum from hard-left to extreme right with nationalists and neo-Nazis thrown in as well. All denounce the bailout to a greater or lesser extent, although one leftist party believes it could be radically modified. There is clear potential here to derail the bailout. The Greek people have spoken, however. There will be difficult days ahead.