Speaking to senior figures in the City of London this week, the only problem with Greece?s new coalition government appears to be that it won?t last long enough.
Lucas Papademos justifiably commands international respect, both as a banker and as an economist. And every sensible person should wish his coalition government well. But now the party political turmoil has abated, it?s back to business. If the objective remains that Greece should stay in the euro — and the 70 percent of Greeks who support this are surely right — then the agenda is clear. What is not so evident to foreign creditors and governments is Greece?s ability and commitment to do what is necessary.
Of course, those same creditors and governments are not themselves blameless in the Greek crisis. The eurozone institutions have delayed and deepened the costs of Greece getting out of the crisis. The key choices for the future rest on Angela Merkel, now looking as if she will be re-elected for a third term as German chancellor. Will her government countenance the European Central Bank acting as a full-blown ?lender of last resort? to national governments in trouble? In some senses, the ECB is already behaving as such with its actions in the bond markets. Will the Germans accept ?eurobonds? as a collective means to overcome the debt crisis, as a belatedly assertive Commission President Jose-Manuel Barroso is pressing for? The Bruegel think tank in Brussels already argued last year that there could be two types of eurobonds to differentiate between states with higher and lower debt levels. The problem is that Merkel is not a bold politician and French President Nicolas Sarkozy has made himself barely relevant.
But the EU drama does not alter the basic agenda for Greece. Whatever the innovative financial deals underpinning the latest euro-rescue packages, the central focus remains the same as it did before the start of the crisis: the lack of competitiveness in the Greek economy. This is fundamental to growth and to the perceptions that creditors hold of Greece?s ability to restore its fiscal position.
And the competitiveness agenda has many implications. Those who argue that Greece was put into the crisis because of the malevolence of its political elite are indulging in the most damaging kind of populism. The rigidities, special privileges, distortions and corruption that have undermined the economy have been created and sustained by society, including trade unions and business. In a democracy, responsibility is shared and progress depends on this being recognized.
The competitiveness agenda needs legitimation as a signal that Greece is changing. For the last two years, Greece has lacked a cross-party consensus on the bailouts. In that sense, the idea of holding a referendum had logic to it: to gain public backing for a precise set of measures that the party system could not handle. If it had gone ahead, I am confident that a majority of Greeks would have supported them.
Instead, for fear that the referendum might have been lost, we now have both major parties committed to the euro-package. But investors need to see more: Credibility comes with the follow-through of serious structural reforms to both institutions and markets.
If both leading contenders for government back the euro-package and its supporting measures, why the rush to elections? An election campaign can hardly lead to more convergence; likely, it will risk pulling agreements apart and damaging Greece abroad. The polls suggest the outcome would have to be a further coalition, anyway.
To foreign observers, Italy has stolen a lead on Greece with a longer, more convincing coalition agreement. Now Greece has arrived at a coalition, credibility would be better served by this being more than a short-term pause.
* Kevin Featherstone is a professor at the London School of Economics.