THE GREEK governing party Pasok and the main opposition party New Democracy last night agreed to form a national unity coalition involving the resignation of Mr George Papandreou as prime minister.
This will approve the package agreed in Brussels on October 27th to provide emergency aid for the Greek economy, begin to implement it and probably prepare the way for elections. It is a welcome and necessary step towards resolving the political crisis which threatens the whole euro zone. Mr Papandreou has been understandably condemned for flawed judgment in calling a referendum on the package last week; but he did so in a desperate attempt to legitimise it. This coalition agreement will secure the irresponsibly withheld but essential endorsement required from New Democracy. The political crisis has also clarified that most Greeks want to stay in the euro. So with this Mr Papandreou achieves his aim of getting political and public support for the rescue package but at his own cost. It remains to be seen how durable such a unity government will be and whether it can deliver on its undertakings.
The outcome should be recognised as the expression of a deep convulsion in the Greek body politic brought on by the looming threat of a disorderly national bankruptcy if the latest tranche of emergency EU/IMF funding does not come. That is in nobody’s interest there – or elsewhere in Europe where the contagion would rapidly spread if it is withheld. It is also understandable that Mr Papandreou’s unilateral decision to call the referendum angered most of his euro zone partners, since their own interests are directly threatened too. Greece’s possible departure from the single currency suddenly became conceivable where it had previously been ruled out and the next funding was made clearly conditional on accepting the deal.
To recognise these raw political realities is not to endorse the brutal manner in which Nicolas Sarkozy and Angela Merkel exercised their power last week by summoning Mr Papandreou to Cannes. They do not own the euro zone system and cannot be allowed dictate its terms. Ireland and other smaller states must ensure more equal and community-based decision-making is built into whatever new regime is established to run a deeper and more politically and economically integrated single currency – if it survives this crisis. The G20 summit failed to find international funding to increase the leverage of the €440 billion already committed to the European Financial Stability Facility, which will increase the pressure on the European Central Bank to act as a lender of last resort.
Still missing is a readiness to stimulate economic recovery, growth, and employment alongside these unsustainable austerity cuts and strict budgetary probity. Greece badly needs an emergency programme along these lines. So, indeed, does Europe and the world economy if a dangerous recession is to be avoided. That is the reality behind the continuing efforts to reinforce the euro zone this week. It is now a race between economic realities and political capacity in which leadership and strategic vision have been sadly lacking.