Greeks will head to the polls later today for their second parliamentary election since May in a closely watched p0litical contest that will leave a lasting imprint on Greece’s willingness to accept austerity measures from an international bailout package.
Euro zone leaders are eagerly awaiting to discover the political developments that will unfold across Greece following the elections later today. Greece remains without an elected parliament due to an inconclusive finding from their elections on May 6th that saw no clear majority party gaining enough seats to win outright in the election.
Although Greece represents only 2.5% of the euro zone economy, its role in the euro zone is important one for the cohesion and stability of the euro zone which has seen recent financial strains within Spain’s banking sector.
Left Vs Right
The focus of the Greek election is expected to center on two political candidates with vastly different views about the direction that Greece should be taking within the euro zone.
Antonis Samaras is the head New Democracy, and is considered to be an old school conservative politician on the right whose own political past helped to cause the corrupt public sector and system of cronyism that led to the financial crisis that Greece is now facing.
Samaras comes from an elite upbringing and was U.S. educated. He upholds Greece’s bailout commitments but wants them diluted through a two-year extension, until 2016, according to the Associated press. He has “pledged to cut tax rates and boost the income of low-earning pensioners, large families, farmers, police and fighter pilots.”
AP reports that “he wants to ‘retake’ Greek cities from illegal migrants and scrap laws granting citizenship to second-generation immigrants.”
Samaras and New Democracy are facing rising competition from a younger Alexis Tsipras, leader of left leaning Syriza Party, a party that has been gaining momentum across Greece, especially with younger populations in larger urban centers such as Athens.
Alexis Tsipras is politically inexperienced compared to Samaras and remains critical of the previously agreed €130 billion international bailout from “Troika” members (ECB, IMF, European Union) with its focus on austerity and greater tax accountability to help resuscitate the Greek economy.
On Thursday Alexis Tsipras told his political supporters to “turn your backs on the two parties of bankruptcy,” asking them to reject the two main parties during the elections on Sunday.
Tsipras has ruled out forming a new coalition government with pro-bailout parties.
Tsipras has spoken about nationalizing banks, restoring lowered pensions and salaries, and canceling plans to eliminate 150,000 civil servants, according to the associated press.
Those actions would put Greece at odds with their international bailout package and international creditors, increasing the likelihood of Greece exiting the euro zone.
Samaras has associated his rival Alexis Tsipras as extreme and supporting a Greek exit from the euro.
Samaras said that if Greece were to leave the euro, its trade would “suffer” and unemployment would increase further.
“The first thing we must determine in the elections on June 17th is to choose between the euro or drachma,” Samaras told a crowd on Friday.
Greek Bailout Revisted
On February 21st 2012 euro zone countries reached agreement to give Greece €130bn, needed in time for the country to refinance €14bn of loans on March 20th. The deal was expected to bring Greece’s debt down to 120% of GDP by 2020.
On April 5th 97% of Greek bond holders who held its private sector bonds agreed to the terms of a debt swap in which they would take a 75% loss in return for a new package of debt securities.
Germany, led by Chancellor Angela Merkel, is the Euro zone’s main paymaster and advocates for tight austerity measures across the euro zone.
Germans see their government finances and trade competitiveness as an example to be followed by indebted euro zone countries such as Greece, Spain, Portugal and Ireland.
The types of austerity measures that was already imposed on Greece through their € 130 billion bailout package includes cuts to pensions, lowering of the minimum wage, in addition to the implementation of new tax increases.
If Tsipras’ left leaning Syriza Party and other anti-austerity Greek parties win the majority in today’s Greek election, Greece will likely attempt to renegotiate the terms of its loans from the troika and remain in the euro zone, a softer position than was taken earlier when Alexis Tsipras said that he would “tear apart” the previously agreed bailout package and ask European leaders to replace it with a different bailout plan.
However, renegotiation is likely to fail unless Germany’s Chancellor Angela Merkel and ECB President Mario Draghi reverses their positions on austerity and allow Greece to refinance their loans under different terms.
ECB and Euro Zone Leaders Meet
The New York Times reports that European Central Bank and other euro zone leaders worked yesterday for a grand vision for the euro zone to prevent bank runs and reduce government debt problems.
According to the New York Times article, “Mario Draghi, the president of the central bank and one of the authors of the plan, said on Friday that it would be unveiled within days, ahead of a meeting of European leaders at the end of June.”
Reportedly, countries would also create a “deposit insurance program” to augment national programs. The goal is to reassure ordinary depositors and prevent bank runs.
The Times also reported, “Mr. Draghi is unlikely to soften the central bank’s insistence that euro zone countries continue to pursue budgetary austerity even as their economies sputter. But the plan may call for governments to go about belt-tightening differently. “