ECONOMY

Likelihood of early elections is growing, market insiders believe

Prime Minister Costas Karamanlis may be willing to hold general elections on schedule in the spring of 2008 but there are increasing signs this may not be the case. Bankers, brokers and businessmen appear to warming to the idea that general elections could be held earlier than scheduled, perhaps as early as May or June or in the fall of 2007, at the latest. Some even wish this to be the case because they reckon that getting the elections out of the way could speed up the process for meaningful structural economic reforms. Holding general elections in Greece on schedule is the exception rather than the rule. History teaches us that the ruling political parties have never failed to find a good excuse to hold early elections if they thought they would win them. Tradition against In this regard, both tradition and the polls, which give the conservative New Democracy party a lead over the main opposition socialist party PASOK, are against holding the next ballot in the spring of 2008 even though Premier Costas Karamanlis is, according to a source close to him, «someone who believes in institutions,» meaning he would rather see the national elections held on time. The fact that the majority of the population has been backing the government’s initiative to reform the higher education system despite strong opposition by leftist student and political groups is regarded as a great opportunity by high-ranking conservative politicians. Some of politicians may even suspect that a growing imbalance between demand and supply in electricity may produce blackouts in the summer and hurt the government’s popularity. This goes against the general perception that elections after the summer vacation period usually favor the party in power because people feel good. Of course, this «feel good factor» may have helped the Socialists to win the early elections in the fall of 1996 but did little to change the political sentiment for the Conservatives in October 1993, the last time they were in power before winning the March 2004 elections. Putting aside political calculations and considerations, economic agents, that is, bankers, brokers, businessmen and investors, look at the situation with a different perspective. To them, two things are of crucial importance and justifiably so. Public sector problem First, it is very important that the country avoids a protracted pre-election period because history teaches us that Greece’s huge public sector does not function properly during such periods and many government initiatives are paralyzed awaiting the outcome of elections. Secondly, the country has a strong government with a clear majority in Parliament, something the current electorate law does not really facilitate. Of course, economic agents are not alone in noticing this reality; politicians are also, especially government officials who stand to gain or lose the most from current and future economic developments. From the point of view of a growing number of economic agents, the country appears to be getting into a pre-election mode and this will become more evident as the months go by and the scheduled election time draws closer. This is perhaps what makes them think or even wish elections would be held earlier. Early preparations «Even if elections are not held in May-June and the summer passes, everybody understands that the elections are coming and will start preparing for them in advance, especially the politicians who seek re-election. I do not think it is good for the economy to go through this process and it may not help the government who is going to look increasingly like a lame duck,» said the head of a state-owned bank who thinks elections will be held in the next few months. He belongs to a group of economic agents who share the view that the conservatives are favored to win again and think this time they will not make the same mistake they did in 2004 or the Socialists did back in the spring of 2000. In other words, the conservatives will not adopt the same gradualist approach to economic policy but will be bolder in initiating economic reforms which will have a significant short-term political cost but medium-to-long-term economic and social benefits. We should remember that the conservatives used their first eight months in power in 2004 to try to find a commonly accepted solution to the Greek and Turkish communities on Cyprus, prepare for the elections for the EU parliament held in June 2004 and host the 2004 Summer Olympic Games in Athens. In doing so, they missed valuable time to implement sound economic reforms. Fiscal audit Moreover, the decision to proceed with a fiscal audit which revised upward the 2004 budget deficit to more than 7.0 percent of GDP caused a political uproar and paved the way for the European Commission taking action against the country for its excessive deficit. The government was forced to take additional economic measures in the form of higher VAT (value-added tax) and excise taxes in the spring of 2005 to shore up its tax revenues. By structural economic reforms, the economic agents generally refer to politically unpopular measures to deal with the country’s ailing social security system, open up «closed» professions and reform labor markets. The current government had said right from the start of its current term that it will deal with these issues, particularly the ailing social security system, in its second four-year term. It is not known what Prime Minister Costas Karamanlis will decide on the issue of holding early elections. One thing is certain though: If the country does indeed go into a pre-election mode in coming weeks or months, the economy will feel it. How can one stick to institutions, ignore short-term political advantage and dissuade economic agents from thinking the country is starting to prepare for early elections is something the government can only do by taking some bold initiatives on the economic front as it has on the education front.