Monday, May 7, 2012

Late morning update: Greek markets close down 6.67%; bailout advocates dig in while Greece searches for a gov't

Update: The highest vote getting party, New Democracy, was given three days to form a new Greek government. But the BBC is reporting that after less than one day they are reporting that no one will work with them and therefore can not form a government. It will now fall on SYRIZA, the second highest vote getter, to try and form a government.

There is a bank holiday in the U.K. today, but the rest of Europe is still trying to make sense of events yesterday following elections in Greece and France (as well as local elections in Schleswig-Holstein) that saw austerity advocates go down to defeat.

The Athens Stock Exchange General Index closed today down 6.67 percent, actually up from the open. Uncertainty is the word in Greece today as New Democracy, which saw its support collapse, is still in the position of trying to form a government. It has three days to do so or else the task will fall to SYRIZA, the leftist coalition of parties to do so – its prospects of accomplishing this task even smaller than New Democracy's.

Here is an excellent analysis from Nick Malkoutzis on the English website for Kathimerini:

How could voters accept New Democracy’s claim of displaying responsibility when it spent the last six months trying to dodge any responsibility that came with being part of the coalition government it formed with PASOK and the Popular Orthodox Rally (LAOS)? How could it convincingly claim that it had the country’s interests at heart when its leader Antonis Samaras stubbornly insisted he would only accept an election result that would give his party a clear majority? How could Greeks believe in a party that based many of its election pledges on policies that had already been agreed with the troika and included in the new bailout program, such as unifying property taxes and privatizing ports and marinas? In the final days of the campaign, Samaras was flanked by former Prime Minister and party leader Costas Karamanlis, who led a government that failed to deliver on its promises of fighting corruption and reforming the public sector, and who in his last year in office saw Greece borrow double what it had budgeted for and the country’s deficit spiral out of control. Not once during the campaign did New Democracy show any compunction for its role in the crisis that has led to millions of Greeks being sorely tested. Instead, it seemed to celebrate its failure.
The whole column is worth a read, but as someone who reads ekathimerini.com every day I was taken back a bit by commentary. The news organization is closely tied to New Democracy and it seemed, leading up to the election, desperate to back the established party. Now comes the criticism, too late, and a bit shrill – but accurate, it seems to me, in the end.



The EU and Germany appear in denial. Today both said that Greece must live up to the terms of the negotiated bailout – as if yesterday never happened.
BBC: Speaking to reporters on Monday, German government spokesman Steffen Seibert spelt out Berlin's position that "the agreed programmes must be adhered to". He added that Germany would support Athens in returning to competitiveness and financial stability, "whatever its government is".
Yes, we will work with any elected government, as long as that government does as they are told. That will work.

There appears to be many in denial this afternoon, and the Germans are not alone in their state. Many Greek/English commentators are also expressing dismay and outright denial of the election results (I'll spare them direct links.) The reason, though, may be higher personal.

Greece on the Euro means mobility to many Greek professionals. Journalists, bankers and other professionals see the Euro as a sign that they are part of larger Europe, free to be both Greek and something else. The satirical photo at right (which is thinking of the situation in France) probably reflects the thinking of both sides in the election: for populists, it is a reflection of the wealthy who live where they do only until a better financial situation is found; for others, they see the other side as being anti-business, anti-wealth, anti-entrepreneurial. Both sides are speaking past each other.

And this is where I am concerned: if the advocates of the Euro and austerity are not willing to compromise the electorate will be forced to support politicians with more radical agendas. The same is clearly true for the other side, as well.



IMF Managing Director Christine Lagarde has just issued a statement that is interesting in that it calls for countries to maintain policies in the face of recession, but not targets. In essence, it calls for fiscal restraint, but not dogmatic sticking to budget goals.
“Countries need to keep a steady hand on the wheel. This means that if growth is worse than expected, they should stick to announced fiscal measures, rather than announced fiscal targets. In other words, they should not fight any fall in tax revenues or rise in spending that comes about solely because the economy weakens.” Ms. Lagarde stated. “So again, there’s no avoiding this brake of fiscal adjustment. But if calibrated correctly, we can make sure it doesn’t do too much harm to growth”.
This could be interpreted many ways but I would argue that it is a call not to take radical austerity measures over and above those already planned just because a countries budget may be in short fall due to an economic slowdown. Lagarde seems to want to stir a middle course between austerity and growth. I wouldn't be surprised if the new French president François Hollande sees this as just fine. While he has been a vocal critic of austerity, and an advocate of pro-growth policies, he is also not seen as much of a radical (though he seems to be scaring the bejesus out of the folks at the FT.)


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