A make or break moment for Greece
By winning the vote of confidence on Wednesday, Prime Minister George Papandreou has bought time and some additional political capital. He will need both in the short-term. But winning the vote of confidence was the easy bit given what was at stake and in light of what still lies ahead during the coming weeks.
The next challenge is just around the corner and it will determine the political future of Papandreou?s reshuffled government. Papandreou succeeded in passing a new set of austerity measures and crucial privatization legislation on Wednesday. He even received some support from opposition politicians. More specifically, one member of the opposition New Democracy voted with the government, while five independent members of the opposition Democratic Alliance voted ?present?.
Does the adoption of the highly controversial legislation and limited signs of cross-party cooperation solve the prime minister?s most immediate political problems? The heart of the matter is not only about reaching across the aisle in parliament, but reaching out to establish a new social contract between frustrated citizens and discredited politicians.
New Democracy leader Antonis Samaras was under intense pressure from EU leaders. German Chancellor Angela Merkel and representatives of the European People’s Party in Brussels repeatedly urged Samaras to extend support for the austerity and privatization package in Wednesday?s parliamentary vote. But Samaras preferred to continue playing hardball with the Papandreou government. His gamble may backfire. He risks being left holding the short straw at the European level if he insists on proving his intransigence.
The troika (EU, IMF ECB) have repeatedly emphasized that the austerity package must be supported by the broadest possible majority in parliament. The demand for a policy of national consensus in Greece is based on similar agreements in Ireland and Portugal, both of which have rescue arrangements with the troika.
However, assuring passage of the austerity and privatization legislation in parliament may only be the easy part. Given the waves of discontent being expressed by the so-called Indignant citizens on Syntagma Square in Athens and trade unions? militant industrial action, the subsequent implementation process will be severely challenged by different constituencies and thus risks being delayed or sabotaged.
Greek public and private sector unions held a 48-hour general strike for Tuesday and Wednesday of this week, the fifth in 2011, after staging seven last year. The rolling strikes of the GENOP trade union at the Public Power Corporation (PPC) against the government?s plan to reduce its shareholding from 51 percent to 34 percent is the initial litmus test of the privatization program. All aspects of the complex and contradictory relationship between the government and trade unions in Greece are concentrated in this stand-off.
It was a mistake during the negotiations last year for the first rescue package not to include the largest opposition party and trade unions in working out an agreement. This lesson was quickly learned and applied in the subsequent cases of Ireland and Portugal, but grossly overlooked in Greece.
For more than a year, trade unions have steadfastly refused to constructively engage in shaping the narrative of the Greek reform agenda. If Prime Minister Papandreou and the newly appointed Energy Minister Giorgos Papaconstantinou can hold their line and deliver on the controversial issue of electricity privatization in a timely manner they will establish policy momentum and create credibility for the state divestment plan.
The hideous difficulties facing the real economy, the contraction of bank credit in combination with ongoing capital flight from and record unemployment in Greece, particularly among young people, make Papandreou?s endeavors this week a herculean task. In a word, Greece?s social fabric and its economic stability are being challenged like never before since 1945.
What we are currently witnessing on the streets and squares across Greece is the next stage of the country?s two-year long crisis. It now involves the collapse in trust between citizens and Greek-style parliamentary democracy. The rallying cry heard on Syntagma Square is that all politicians are ?thieves?, irrespective of their political background or time served in parliament.
So what next? More of the same? The breakdown in political trust, citizens losing faith in their politicians risks much deeper ruptures further down the road. The major concern is the following: when will Greeks? distrust of government, traditional political parties and representative democracy start spilling over into other areas such as losing faith in the EU, or calling into question the country?s 10-year membership in the single currency?
Anecdotal evidence is starting to emerge that apart from continued capital flight Greek citizens are frontloading Swiss francs, gold coins and other safe, but liquid assets. They fear that Greece could ? perhaps in a year from now ? end up being forced out of the euro zone or taking the exit option on a semi-voluntary basis. Under these – in my view unlikely – worst-case scenarios nobody wants to be sitting on a large pile of devalued New Drachma converted from the euros citizens still hold in their Greek bank accounts.
But while the political protests are taking place on the streets and squares of Greece, the real decisions about what happens next in Athens are squarely taken in Brussels, Washington and Frankfurt. While Papandreou is seeking approval for his controversial legislation, he does not control events anymore. In fact, the protests of the indignant citizens, the trade unions? militancy and New Democracy?s defiance only underline the powerlessness of all domestic sides involved in this Greek tragedy.
In passing the austerity measures and privatization legislation Papandreou gains further breathing space and the EU buys much-needed time to work out the shape and size of a second bailout arrangement for Greece, inclusive of the modalities of private sector burden sharing. European banks hold 17.2 billion euros of Greek bonds maturing by the end of 2013.
Greek banks, which must join any rollover arrangement, hold almost 22 billion euros of bonds maturing in that period. Greece?s central bank owns 5.1 billion euros of sovereign debt eligible for a rollover. A French proposal calls for 50 percent of the Greek debt held to be rolled over into 30-year bonds. The remaining 20 percent would go into a special purpose vehicle used to guarantee the 30-year debt.
However, the underlying issue remains the country?s debt sustainability. The day of reckoning may be put off for a few more months but the need for the eurozone in cooperation with the IMF to set up a toolbox comprising an orderly, properly financed and well-prepared sovereign default procedure and restructuring mechanism of Greece?s obligations remains a matter of urgency.
Time has been squandered and political capital wasted for far too long during the past 16 months. The responsibility now lies first with Athens to adopt the legislation, and then to sit down with its financial benefactors in Brussels, Frankfurt and Washington to work out a comprehensive and transparent solution, sooner rather than later.
*Jens Bastian has lived and worked in Greece for the past 14 years. He is a senior economic research fellow at the Athens-based think tank ELIAMEP (Hellenic Foundation for European
