Prime Minister Costas Karamanlis’s decision to call early elections on September 16 may vindicate those who argue that Greek political parties never fail to find a good excuse to hold early elections if they think they will win, but may turn out to be a good thing for the country provided it leads to a strong government with a fresh mandate. It is no secret that the premier had for some months been mulling the possibility of holding elections earlier than scheduled in the spring of 2008. At the time, it was the fierce objection of leftist students and political parties to reforms in the education system which could have provided the excuse. However, the premier chose not to proceed either because he thought it was too early or he was dissuaded by the repercussions of the scandal involving government structured bonds which were subsequently sold to state-run pension funds at highly inflated prices. Despite this, the general feeling in market circles was that the country had entered pre-election mode well before the summer. Talk of government inaction on many fronts was animated, as it was clear some cabinet members had chosen to avoid taking unpopular measures or decisions thought to be undesirable by trade unions and the employees of state-run companies. Although Karamanlis would have preferred to have held elections in spring next year, according to individuals who had spoken to him, he chose to stick to the Greek rule rather than the exception of holding general elections on schedule. The ruling conservative New Democracy party appears to be ahead in the polls by only a small margin, but apparently its strategists believe they can convert Karamanlis’s popularity advantage over George Papandreou, the leader of the socialist PASOK party, into a more comfortable victory on September 16. Whatever the reasons, it is a calculated gamble which may or may not pay off for the conservatives and, more importantly, for the country as a whole. Still, the country and the economy have won the first battle. The actual pre-election period will be short. This is very important for a country whose huge public sector does not operate normally during such periods and political favors take precedence over rational choices. Handouts It is no secret that Greek governments usually hand out billions of euros for about six to 12 months during pre-election periods because they think it will help them win the elections. This time the handouts were not insignificant but did not materialize into disbursements that might threaten public finances. But we will not know until the night of the elections whether the country and the economy will have won the second and more decisive battle. That is, whether the election will produce a government with a relatively comfortable majority in parliament and a fresh mandate for economic structural reforms. Bankers, brokers, analysts, businessmen and those active in the market in general are hoping for a strong government irrespective of its color, that is, the blue of the conservatives or the green of the Socialists. Citigroup made it clear in a report, adding something else that market participants recognize: the value of government continuity at this point. Lost time Its is widely recognized that the conservatives lost considerable time back in the spring of 2004 when they came to power after some 11 years in opposition. Instead of pressing ahead with the unpopular but necessary reforms right at the beginning of their four-year mandate, when new governments enjoy a grace period, they consumed their time assembling government teams and instead opted for other priorities. Moreover, the newly elected Greek government got involved with efforts to find a mutually accepted solution to the Greek and Turkish communities in Cyprus which ended in failure, it held elections for the European Parliament, which it won handily in June 2004, and made the final preparations for the Summer Olympic Games. As a result, the government lost the precious first six months in power to introduce unpopular reforms and opted for a more gradual approach in the economic domain, marked by the fiscal audit and EU disciplinary action against Greece. So, market participants are concerned we may have a repeat if a new administration takes over and needs time to put its teams together, formulate policies and take initiatives. Particularly so if the Socialists win rather than a different conservative government being formed. However, to some extent, these concerns may be overstated because the socialists have only been out of power for three-and-a-half years so it will be easier for them to regroup. Nevertheless, the concerns about a strong government are well founded. Greece may have had a strong government since 2004 but no one would assert it undertook the reforms expected by many. Some even remember the Socialist government under former Premier Costas Simitis, which won the 2000 elections by a small margin, making it very difficult to introduce much needed economic reforms in areas such as the social security system. With the pay-as-you-go social security system getting deeper and deeper into the red, the need for its reform is paramount but the willingness to do so is limited by the huge political cost. Reaching political consensus over painful reforms to keep the system viable for a long time to come would be the ideal solution, but it is very difficult to attain such consensus in Greek politics, even though politicians from both main parties recognize its importance. Nevertheless, businessmen and others think it is more likely that a strong government will tackle the social security problem and reform the labor laws than a weak one. They have another reason to want this. They realize the importance of corporate size in the modern world, where globalization is the norm, and hope the reforms will increase the benefits of synergies arising from mergers between large corporations and at the same time lower costs. Whether or not market players are right, only time will tell. However, history appears to be on their side. Strong Greek governments are more likely to undertake more reforms than weak governments or coalitions between political parties. On September 16 we will know whether their wish came true.