France simmers, Greece boils

Back in early February I wrote a post about 2 key things that I was watching out for in Europe that I thought the economic world was underestimating the impact of. I called these things “black cygnets”. One was Spain, the other was elections.

My concerns about Spain came to pass and now it seems elections are doing the same. As I have mentioned a few times in my European coverage, one of my greatest concerns about the failings of Europe’s economic policy response to the crisis was a dangerous political fallout. As I stated previously:

Obviously this is an economic disaster and I have been at the front of the queue screaming about misguided economic ideologies in Europe that have led, and continue to lead, to this situation. However, it doesn’t take much of an imagination to realise that this has the potential to become something much more sinister than just ugly looking charts and that is my real concern.

It was obvious from round one result of the French presidential campaign that the Right was gaining strength in Europe. Marine Le Pen played a critical role in ousting Sarkozy, and given the failing of Sarkozy to re-claim the presidency she is now expected to extend her base into the national parliament in June elections:

An implosion of French President Nicolas Sarkozy’s ruling UMP party has sunk his chances of re-election, far-right leader Marine Le Pen said, calling on disenchanted conservatives to join her National Front in a new grouping to run for parliament.

In an interview with Reuters, Le Pen said centrist UMP stalwarts had wrecked Sarkozy’s strategy of moving sharply to the right in the hope of winning over National Front voters for Sunday’s presidential run-off.

“The UMP is digging Sarkozy’s grave. They prevented him from even having the hope to win,” said Le Pen, who won six million votes in the first round of the election last month and now wants her party to return to parliament.

As I explained last week, although the major theme around President elect Francios Hollande is that his policies will be disruptive to the Franco-German alliance, my own opinion is that he is actually calling for tighter European integration. Whether or not the Germans will be receptive to his opinions given he is calling for additional government spending in the short term is yet to be seen. Initial comments aren’t particularly encouraging:

“I’ve said that everybody who gets freshly elected into office must be able to save face,” Schaeuble said. “So we will discuss this with Hollande in a very friendly way. But we won’t change our principles.”

But it is early days. France won’t accept the same treatment as a small periphery economy and certainly isn’t alone in calling for a re-think of the fiscal compact. I note Christine Lagarde, president of the IMF and former French finance minister, renewing her calls for slower austerity overnight. This is very much a positive move in my opinion, supra-European austerity has been an utter failure, but it is yet to be seen exactly what the outcome of the end of ‘Merkozy’ brings.

Germany, however, may not be President Hollande’s biggest issue in the short term. That may well be his own parliament:

French leftist parties will stop short of garnering an absolute majority in the legislative elections next month, according to several polls conducted Sunday after Francois Hollande’s victory in the presidential elections.

A BVA survey showed the left would garner 46% of the vote, a score that adds up the Socialist Party’s 35% and the 11% attributed to the Leftist Front, led by Jean-Luc Melenchon. Mainstream conservatives would garner 33%, while 17% of those interviewed would cast their ballot for the far-right National Front, led by Marine Le Pen.

The two-round legislative elections will renew the National Assembly, the pivotal law-making branch of parliament, and will decide how strong a backing the president-elect can bank on to push through his agenda.

While other pollsters, including CSA and Ifop, forecast similar showings for the country’s main political forces, the numbers are of limited significance, because the 577 members sitting in the National Assembly are elected by a single-member constituency through a two-round system, and not on a proportional basis.

If no candidate obtains an absolute majority in an electoral district, those garnering the support of at least 12.5% of those enrolled in the electoral lists pass to the second round. The system is supposed to encourage alliances between small parties and favors mainstream parties who have an even presence throughout the nation.

Still, the strong showing of the National Front and the Leftist Front may propel the two extremist parties to the center stage of national policy.

If the Right continues to gain power then that balance will shift further.

France, however, at least has some short term stability, this is not something you can say about Greece.

Below is the break-up of the seats from the Greek parliament after Sunday’s election. Greece’s two long-term ruling parties, PASOK and New Democracy have been smashed and have less than the required votes to build a ruling coalition. New Democracy finished with 19 per cent of the votes and 108 seats , PASOK received 13.3 per cent and 41 seats. These parties have basically been running the country since 1974 and have together previously garnered close to 80% of the vote. In Sunday’s election together they couldn’t even manage 35%:

Obviously this is a massive anti-austerity message from the Greeks, but most concerning is the bottom of the chart. Greece lost 10 per cent of its population to the Nazi’s in World War two, yet a neo-nazi party has managed to gain 21 seats in parliament with approximately 7% of the vote.

Given there are no 2 parties with a viable coalition then the a third part will need to be found. Antonis Samaras, leader of New Democracy, had 3 days to attempted to create an agreement with a third party, but after just 6 hours of talks he has thrown in the towel:

I tried to form a coalition government with two goals: that the country remain in the euro and bailout policies change to include growth measures. I did what I could to get a result but it was not possible. As such, I have informed the president of the republic and handed back the mandate.

The gauntlet has now been handed to Alexis Tsipras, the head of Syriza, who has vowed to form a coalition of the Leftist parties and rewind the bailout agreements with Europe. But, as you can see from the numbers, this is a big ask and his own attempts to form a coalition are likely to fail. If Mr Tsipras is unable to form a coalition then the head of PASOK has three days. After that the President takes over and after one last attempt to build a government will call for a new election some time after June 10.

The problem is that while the parliament is in limbo Greece’s debt payment schedules begins to slip. A payment of €430 million on the yet to be negotiated international law bonds from the PSI is due on May 15, and by June 30 the Greek parliament is supposed to approve and additional €11.5 billion of further cuts in order to secure on-going funding from the Troika.

Given the parliamentary limbo, it is likely that the May 15 payment will be made by the caretaker government, but if a working parliament that agrees to the bailout conditions cannot be formed in the coming days then it is likely that the Troika will delay the next tranche of €31 billion in 2012 payments. If no political resolution can found overall it is likely that the programme will be stopped altogether. If that occurs then Greece will have little choice but to leave the Eurozone and default on much of its outstanding €220 billion in debt.

In other words, Greece is back …. but not in a good way!

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  1. tonyddMEMBER

    I am sitting here trying to ‘be a Greek’, thinking about the fear and anger the real Greek citizens are experiencing. And the first thing that I realized is that it is such a complex emotion picking an outcome with any detail is unlikely.

    The comlexity does IMO suggest instability of government. The not unreasonable feeling of unwitting victims true for at least a large minority will make an outright default likely.

    And here is the reason: Greece has operated a 2 speed economy, one in Athens and the other in the regions and islands.

    Two speed economies are socially devisive and politically posionous in the long run.

    This point should not be lost on our local elected representatives.

    • Nice to see pollies get it in the neck for handing over the people’s futures to the banks

  2. Half a million Greeks in Australia. They will not have to wait long before OZ property collapses 50%, OZ banks collapse, and the currency tanks. Recommendation is to emigrate from Sydney and Melbourne and use your current AUD to buy cheap EUROS. AUD is up more than 50% of the GFC 2008 lows. Europe will surprise everyone and will boom over the next 3-5 years. Sell your Melbourne beach hut and get yourself a taverna back home.

  3. Wow, bravo! +1.

    I believe DE’s posts on Europe over the last year will end up as a compulsory reading in any economic history course in the future.

    • +1. It is admirable to be able to keep telling the sad saga in an objective fashion as DE does.
      As for the results, as sad and unbeliavable as it is to see the extremists there, when one looks at the chart above, it speaks of desperation and division. Who can you turn to when your whole country is sinking in debt and misery?

  4. The political situation is getting pretty complex, and I saw on a terminal last night that Juncker said France can’t renegotiate the fiscal compact. So the “simmers” term is spot on.

    I don’t think the EU will let Greece default as what are the fallout from that? I don’t know, but I think so changes to austerity might string it out for a little while longer.

  5. Ronin8317MEMBER

    What we may see is the ‘Belgium’ option : no party in Greece being able to form government at all, even after repeated elections. All we need is for a regions in Greece to declare independence, and Greece will cease to exists as a country. That will solve the debt overhang problem though.

  6. russellsmith55

    26 seats to communism, 21 seats to neo-nazis… that is just… wow. Where do you even start with something like that..?

    • Think tank Leap2020 had predicted this outcome in 2010 – emphasising the underestimation of the continued rise of the LePen’s Party. Put all of this into the mix with rising unemployment, substantial immigrant population, continued economic woes and potentially you have an explosive mix. Some have felt the unrest in France could eclipse any seen to date.

    • Nigel Farage To European Parliament: “…if you rob people of their identity, if you rob them of their democracy, then all they are left with is nationalism and violence. I can only hope and pray that the euro project is destroyed by the markets before that really happens

    • tonyddMEMBER

      For every action, there is an equal opposite reaction !

      It is important to view these symptoms as just that, symptoms, the causes were the financiers trying to control political process to enrich and avoid the consequences of their commercial folly and dishonesty.

      Extreme political reaction is IMO entirely expected.

      And it can happen anywhere!

  7. Great work DE – a genuine highlight!

    Greece is where “fine in theory” breaks down.

    Greece is broke and must default if the debts are not going to be written off by the creditors.

    Trying to engineer a de-facto devaluation by cutting wages etc is political madness and trying to do so will produce more chaos and more extremism.

    To quote Dario Fo

    “Can’t Pay Won’t Pay”

    The choice is simple write-off the Greek debts or they must default and leave the Euro.

    The oh so smart 3rd way of ‘re-structuring/ plans/ troikas’ being tried at the moment will destroy Greece and possibly unleash forces across Europe that we would all prefer to avoid.

  8. That 7% vote for the neonazis is worrying, but not surprising given the incredibly high unemployment rate.

  9. Peter Fraser

    Don’t take this as a criticism of your post, but cygnets produced by mating black swans are white, not black.

    I watch them regularly as they mature into fine black swans as they approach adulthood.

    I along with the others here, have concerns about the political far right. Unfortunately it’s already raised it’s head in Australia, and they no longer hide from view.

  10. I wish to make a couple of points, as whilst I do acknowledge the effort that DE has made in trying to source through the noise, (of which there is considerable given the significance of this election in western eyes), there are a few points which need to be clarified so that the readers may gain a deeper insight. I do not profess to have re-read and fixed my comments so some may be weak in detail or elaboration and for that I am sorry.
    Point One:
    I have posted before to the effect that the political history of Greece is completely separate and isolated to that of the rest of Europe. In this sense, 3d1k, I cannot agree with your point that this was “predicted” by Leap 2020. As I have previously commented on, the division of Greeks into Stalinist, Marxist, quasi-fascist and nationalist (there is a clear distinction between the two) stems purely from the dictatorship and the foreign intervention of the powers to suppress the communist revolution of which the majority of Greeks supported.
    The position of the parties in the political debate is nothing new. KKE has consistently placed in the polls since I was born, and moreover, ND and Samaras in particular have always maintained vested links with nationalist/fascist figures as a means of drawing in their votes (the splinter of Independent Greeks and LAOS in particular) – a prime example being the hyped nationalist fervor that Samaras single handedly manufactured in the 90s over the “Skopje/Macedonia Problem” which he did as foreign minister as a vehicle to propel him to the position of Prime Minister in waiting.
    Greeks have known for many years that there is an ideological division stemming from the junta years, it is the lack of knowledge and will of foreigners to learn which explains why they are so astonished by the electoral results.
    Point Two:
    Certain comments have interpreted the Greek situation as relational to that of Belgium – a MASSIVE mistake for very obvious reasons. Anyone who has followed the political career of Samaras has known that he is a ruler, not one to be ruled. I laugh when I read the BBC describe utter horror that Samaras “failed within 6 hours” to form a government. He never wanted to form a government – he is very happy that Tsipras has taken second place because it is well known that the differences between KKE and SYRIZA can never be reconciled – meaning that the only solution is to go to another poll – just as he has threatened to do over the past few weeks. Again, a breakdown of the election shows that ND won the vast majority of municipalities, the only problem being the degree to which they won. He is gambling that Greeks will vote for ND not as their choice, but as a decision that needs to be made to have an actual parliament. Personally, I believe he will win.
    And onto the issue of the various states declaring independence. It must be reminded that Greece by definition can never be described in the same ilk as Italy, France, Belgium, Austria etc etc etc. It is not a conglomeration of states that were unified. Greece was born ideologically whole due to its Greek orthodox population (which was the identifier of nationality). It is no coincidence that there is no distinction today between the Greeks from Anatolia and those from Egypt in mainstream life. To suggest a division of Greece based on regions smacks of painting a picture with a broad brush
    Point Three:
    Many here no doubt influenced by the weight of western media, seem to have become almost enthralled by the rise of fascism, the rise of the neo-nazis, the rise of Xrisi Avgi. I should point out that there is no rise of fascism and that the party is nothing more than a proxy for the failures of the population to come to terms with the dictatorship and also of the political systems failings to properly assess the immigration problem.
    If you look at the breakdown of the municipalities and the way they voted, you will find that they only gained votes in a certain belt of municipalities in Peloponnesos and greater Athens. These are the areas with the highest Asian illegal populations. I note Asian, because in the eyes of mainstream Greece, there is a very much substantial difference between the productive Albanian population and that of transit illegals of Pakistani/Bangladeshi and Afghan origin. The Greek mentalite is very much concerned with the present, and although many here will argue that the rise of Xrisi Avgi is a response to the present economic downturn, I would suggest that it is merely (1) the coming to the surface of the failures of the State to pursue a proper immigration strategy to deal with the hundreds of thousands of illegals who enter Greece each year; and (2) a backlash to the unchecked growth of leftist and stalinist organisations who utilised their position to force public guilt on anyone who dared promote a deep right wing opinion.
    It is in effect, a reflection of the Greeks who through the links of patronage have never had to deal with the scars of the Greek civil war, where brother literally killed brother. This lost voice space however could not be suppressed forever, which leads to the immigration problem. It is true that Greece “put up” with illegals whilst they offered “value”, but now that this value has been diminished they need to leave. To be fair, that sentence is not necessarily one which Greeks would disagree with but should be limited by the statement that the illegals should have never been allowed to move freely within the country in the first place. It’s a simple game of public policy catch up. Let an issue foster for too long and when a catalyst ignites, an inferno burns.

    • Apologies. That was my mistake Pao2ogre – too much rush too little thought – I was referring to Leap2020’s forecast for France and should not have posted in the reply to rs55. Cheers.

    • Pao2gre thanks for the insight.

      A great read.

      Your point

      >I should point out that there is no rise of fascism and that the party is nothing more than a proxy for the failures of the population to come to terms with the dictatorship and also of the political systems failings to properly assess the immigration problem.


      >This lost voice space however could not be suppressed forever, which leads to the immigration problem. It is true that Greece “put up” with illegals whilst they offered “value”, but now that this value has been diminished they need to leave.

      This is well understood, we have seen glimpses of this in Australia, but thankfully they were only passing.

      But that is my major concern. Everyone is happy to get along whilst the going is good. Once hard times hit it is easiest to blame the “outsiders” for your problems even though they may not be to blame for what is actually happenning.

      Extremist parties grow in strength in these environments.

  11. The move towards even more socialism is fairly clear here. The reaction to Austerity is the reaction one would expect from a society that has become dependent upon being dependent.

    As someone famous once said, historical democracies have only lasted about 150 – 250 years, until half the population realise they can raid the treasury and keep voting themselves more and more benefits at the expense of the other half of the population.

    Socialism has killed these countries and they have voted for more socialism. The socialism of the nationalist kind is on the rise as a result of immigration issues, but it’s socialism all the same.

    Glad I live on the other side of the world.

    • These “socialist” countries have had centre-right leaders for the past decade or so. Despite no personal history of voting left, I suspect that the extreme right ideologies, including moving capital to the top at record amounts, is at the root of the problems the world is dealing with and the population in Europe is waking up, realising where the problem of “entitlement” is, and it is certainly not at the level of social welfare alone. Future pension liabilities are a massive problem though, all across Europe.
      I think that an open discussion about who are the “entitled” and what needs to be done is very important.
      Maybe your kind of great Australian dream is to bring in some eurocrats and GS bankers in a skilled immigration program. I am sure they’ve got lots of nice tricks up their sleaves to make this a wonderful country.
      I love Australia but I fear what kind of a country it is becoming if social welfare is entitlement whereas corruption and tax avoidance at top levels is not.
      Rant over.