Wednesday December 17, 2014 Search
Weather | Athens
17o C
11o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
May could be decisive month this year

 Politics will determine whether the Greek economy will suffer a setback or enter a virtuous cycle in 2014

By Dimitris Kontogiannis

Greece is expected to make more progress on the macroeconomic front in 2014, but a large part of the population is likely to come under more pressure as austerity policies bite deeper, increasing political risk in view of elections for the European Parliament and local authorities in May. Whether growing public discontent may lead to a period of political uncertainty remains to be seen. This will be the main factor that will determine whether 2014 will be a bad or good year for the economy.

In some respects, 2014 is a lot like 2009. In the spring of 2009, former conservative prime minister Costas Karamanlis reportedly sought the consent of main opposition PASOK party leader George Papandreou to implement tough measures to cut the budget deficit. With just 151 deputies in the 300-seat Parliament and little influence over trade unions, the New Democracy leader thought his government would have been ousted if he were going alone.

On his part, Papandreou felt that conditions were on his side with public discontent on the rise. He warned that PASOK would trigger elections in the spring of 2010 and topple the government by refusing to agree with the conservatives on a candidate for the presidency, meaning the nominee would not get the 180 votes in Parliament needed. Karamanlis decided to carry on and suffered a comparatively mild defeat in the elections for European Parliament in June 2009.

However, he soon realized the need for an ambitious program of fiscal consolidation and called early elections in October 2009. He ran a pre-election campaign on a platform of austerity and reforms and the New Democracy party, which had disappointed even its core constituency with its past performance, was routed. PASOK and Papandreou, who campaigned by telling the public that there is money (for spending), won handily.

Back to the present. Undoubtedly, conservative prime minister Antonis Samaras is not Karamanlis, and unlike his conservative predecessor he leads a two-party coalition government. Alexis Tsipras, the leader of the main opposition radical leftist party, is not Papandreou and he knows that even if his party wins it will have to form a coalition government. But both face European and local elections in May and Parliament has to select a new president next year.

Moreover, Tsipras has made it clear he will seek general elections if SYRIZA wins the May elections for the European Parliament. The party could also force national elections in 2015, when the term of current President Karolos Papoulias expires, and it can count on public discontent to enhance its electoral chances as the troika insists on more austerity measures to achieve primary budget surplus goals in 2014 and 2015.

So, Prime Minister Samaras is facing a similar dilemma to that of Karamanlis in the spring of 2009, although the economic situation is quite different. Public finances have been put in order at a very high cost in terms of lost output, jobs and purchasing power. In addition, the political landscape is more fluid and gives rise to two scenarios.

Under a benign political scenario where the political risk does not translate into a protracted period of political uncertainty and the economic program is broadly implemented, even with some delays, one should expect positive economic outcomes.

Greece should produce a bigger primary surplus than in 2013, perhaps close to the target of 1.5 percent of GDP, and the current account balance may post a surplus. In addition, recession should continue to recede and may give way to stabilization and slim growth at some point in the second half of 2014, aided by another strong year for tourism and a small rebound in investment spending with some highway projects being restarted. This should help stabilize and even trim the high unemployment rate, but will do little to make the positive impact felt by society.

In this context, Greece should also be able to capitalize on the expected debt relief measures to be decided by the Eurogroup to partially access financial markets at acceptable borrowing costs in the second half of the year. This should further boost market and business sentiment and put the virtuous cycle in full motion, paving the way for a return to growth which will be felt more by the masses in 2015.

Under an adverse political scenario marked by a protracted period of political uncertainty, the economic landscape would be quite different. Progress on the fiscal front would be limited at best and the chances for an economic recovery later in the year will be trimmed if not eliminated as market sentiment turns sour, hurting consumption and business investments. Unemployment may even march higher and income inequalities rise further as more people from the middle class join the ranks of the poor. Greece will have no access to global markets and will be forced to seek a new bailout loan with conditionality. Since the main political forces do not want to leave the euro, they will have to swallow the bitter pill but the economy will have lost precious time.

Of course, no one can say for sure what will happen next May and beyond. However, it is clear that politics will be the most important factor in economic developments in 2014. It will determine whether the Greek economy will suffer a setback or enter a virtuous cycle. Premier Samaras was of the opinion back in 2009 that the conservatives should have implemented fiscal austerity and not called early elections. This time he has to make the call but he has to count on the deputies of the junior coalition partner, PASOK, to go along. It will not be easy.

ekathimerini.com , Monday Jan 6, 2014 (22:12)  
Bourse index recovers some lost ground
Piraeus ambitions one step closer as China signs Balkan bullet train deal
Cyprus govt spending to rise only 0.6 pct in 2015
Athens Hygeia obtains 100 pct control of Hygeia Tirana
Universities ask state to reverse mobility scheme
Rectors representing the countrys largest universities on Wednesday appealed to the government to take immediate action to relieve operational problems at the institutions that have been ca...
Greek Parliament fails to elect president in first ballot
Just 160 MPs backed the government's candidate for president, Stavros Dimas, in the first of three votes on Tuesday. Dimas had been expected to draw at least 161 of the 200 votes he needed b...
Inside News
BASKETBALL
Pappas helps Greens overcome Aris
An impressive Nikos Pappas averted an upset by Aris and ensured Panathinaikos retained its perfect record on Tuesday, one day after Olympiakos thrashed Panionios at Nea Smyrni for the Basket...
Wee Jay and idol Georgios Samaras receive Greek sports journalists award at Athens gala
A 10-year-old Irish fan of Greek striker Georgios Samaras was in Athens on Monday at the invitation of the Greek Sports Journalists' Association, which honored outstanding achievements in sp...
Inside Sports
To keep Turkey democratic, tie it closer to EU
Sunday's arrest of two dozen policemen and journalists in Turkey, including the editor of the country's most popular newspaper and a producer of television dramas, was just the latest eviden...
COMMENTARY
Greek stocks and bonds suggest government may fall
Greek lawmakers will vote Wednesday on whether to back Prime Minister Antonis Samaras's choice for a new head of state. The collective wisdom of financial markets suggests his gambit may fai...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. Bourse index recovers some lost ground
2. Piraeus ambitions one step closer as China signs Balkan bullet train deal
3. Cyprus govt spending to rise only 0.6 pct in 2015
4. Athens Hygeia obtains 100 pct control of Hygeia Tirana
5. Greeces three-year yield drops 21 bps to 10.63 pct
6. Universities ask state to reverse mobility scheme
more news
Today
This Week
1. Leftist SYRIZA leading ND by 3.2 pct, survey shows
2. High stakes
3. The secret is out
4. Poll gives SYRIZA clear lead
5. Greek political fallout a worry, but financial contagion seen limited
6. Samaras seeks Parliaments backing to stop SYRIZA threat
Today
This Week
1. Juncker warns Greeks against voting 'extreme forces' into power
2. Romanos and the dilemma
3. Moment of truth
4. Samaras summons bond vigilantes with euro exit talk
5. East Europe scrambles for energy after Putin kills South Stream
6. A friendly yet firm message from Pierre Moscovici
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.