It looks as if Greek voters have decided to go with the parties that created the mess their country is in.
New Democracy, a center-right party which along with the nominally socialist Pasok has governed the country throughout the financial crisis and its disastrous aftermath, has won a very narrow plurality in the election—29.5% vs. 27% for the leftist coalition Syriza, according to projections by the Interior Ministry.
But it’s a bigger victory than it appears. New Democracy’s first-place finish gives it a 50-vote bonus. If it builds a coalition with Pasok, it can secure a razor-thin majority of 161 seats in the 300-seat parliament and form a government.
This is a big deal because both Pasok and New Democracy back a €130-billion deal with the European Union to bail out Greece in exchange for some reforms and lots of austerity.
Syriza and its rising star leader Alexis Tsipras improved from 17% in the last round of voting six weeks ago, but it didn’t get enough to take power. Tsipras doesn’t reject the euro, but says Greece should renegotiate the deal with the EU, a move Germany has opposed until now.
Apparently Greek voters took a deep breath and decided that a Syriza victory would have been disastrous, not because they like the draconian EU bailout deal—they don’t—but because 80% of them think Greece should stay in the euro, warts and all.
And recently there’s been a stealth run on Greek banks while international creditors have ring fenced their Greek assets, demanding payment in advance in cash, and global banks prepared for the worst. Some investment firms have predicted a Greek withdrawal from the euro would cost $350 billion to $1 trillion and be a Lehman Brothers-like event for the world financial system.
The impact of Greece might be catastrophic—bank runs that make the current one look like a trickle; a hugely devalued new Greek drachma, and hyperinflation, the real kind, not the one in the fantasies of Dr. Marc Faber.
The real danger, of course, is that Greece and the European periphery revert to the chaos we saw in the 1930s, when armed thugs from extremist political parties fought in the streets from Berlin to Madrid. That, too, was a result of years of economic turmoil that decimated the middle class and caused average people to turn to demagogues out of desperation.
A couple of weeks ago, Ilias Kasidiaris, a spokesman for Golden Dawn, the neofascist party that claims it’s not neo-Nazi, physically attacked female representatives of Syriza and a communist party. It was but a small glimpse of what happens when extremists feel they can get away with anything, and I think it caused much soul searching among Greek voters.
Greece may run out of money by early next month. The New York Times reports that European leaders, spearheaded by the European Central Bank, are crafting a big plan to shore up the euro zone’s weaknesses and prevent future crises.
Although German chancellor Angela Merkel has ruled out easing the terms of the bailout, there’s speculation Germany and the International Monetary Fund will lift the burden somewhat. That would be a smart move and a way to “reward” Greek voters for their decision.
European leaders are much better off renegotiating the package with a more agreeable New Democracy and Pasok than with an intransigent Tsipras and Syriza.
They would be wise to give the Greek people more incentives to cooperate. Greek voters have peered into the abyss and backed away. They may not do that the next time around.