A moment’s respite in Europe

As I type about 75% of the vote in the second Greek election in a month has been counted and the leaderboard looks like this.

So it would appear that New Democracy will win approximately 130 seats of the 300 available and therefore technically be able to form a ruling coalition with any of the other top 4. I say “techinically” because there are already reports out of Greece that their previous coalition partner PASOK has stated it won’t form a coalition with New Democracy unless SYRIZA comes on board as well. SYRIZA has already ruled this out stating it will stay in Opposition. This suggest that PASOK officials are concerned that New Democracy will be quickly ousted from parliament due to undeliverable promises leaving SYRIZA in a position to cement its power come a new election. In other words, PASOK appears to want everyone to drink from the same poison chalice because it doesn’t want to be caught on the wrong team if/when the new government fails.

Now there’s confidence !  But I guess I can understand the political dilemma.

Even though New Democracy appears to be the less extreme option it wasn’t long ago that Antonis Samaras was the bad guy of Greece and the post-election statements from the German foreign minister are a stark reminder of the road ahead:

German Foreign Minister Guido Westerwelle signaled on Sunday that Greece could get small concessions from the euro zone over its painful bailout programme but nothing like a full renegotiation.

“There can’t be substantial changes to the agreements but I can imagine that we would talk about the time axes once again, given that in reality there was political standstill in Greece because of the elections, which the normal citizens shouldn’t have to suffer from,” Westerwelle said on German TV station ARD.

“But there is no way out of the reforms. Greece must stick to what has been agreed. If we said to Greece, no matter what we agreed, it doesn’t matter anymore, then we would get a problem with all the other European countries that are diligently and persistently implementing their reforms.

Although in comparison to SYRIZA New Democracy is seen as a pro-austerity party their political campaign was based on re-negotiating the terms of the bailout. This included not only extending the period of fiscal adjustment, but also slowing down the rate of public spending cuts, extending unemployment benefits, retaining more staff in public organisations and reducing taxes. Given the stance of Europe these promises would appear completely undeliverable and likely to give any opposition a very easy target.
Either way a win by New Democracy is sure to be seen as short-term positive as it negates the immediate existential explosion of the Eurozone, but it changes very little in the medium or long term. The focus of the crisis has moved on from Greece to Italy and Spain, and although I have been saying for a very long time that the economic policies directed towards Greece are utter delusion it isn’t the outcome of this election that is going to change them. The centre of the crisis has now moved west of Greece and a New Democracy win may in fact be further bad news for the other weaker economies because it takes some pressure off Europe to provide a more immediate resolution to Spain.
So good news today but same old news tomorrow I suspect. But lets wait and see if we actually get a working parliament in Greece before stepping too far forward.
The Greek election wasn’t the only show in town over the weekend. The French were at it as well:

French President Francois Hollande’s Socialists won an absolute parliamentary majority on Sunday, strengthening his hand as he presses Germany to support debt-laden euro zone states hit by austerity cuts and ailing banks.

The Socialist bloc secured between 296 and 320 seats in the parliamentary election runoff, according to reliable projections from a partial vote count, comfortably more than the 289 needed for a majority in the 577-seat National Assembly.

The result means Hollande won’t need to rely on the environmentalist Greens, projected to win 20 seats, or the Communist-dominated Left Front, likely to have just 10 deputies, to pass laws. The centre-left already controls the upper house of parliament, the Senate.

This victory should allow Francois Hollande to have explicit parliamentary control as he tries to steer Germany onto a more growth orientated path for Europe. That is most certainly the message he’ll be taking to the G20 in Mexico this week.

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Comments

  1. I guess this means a few more months of can-kicking, a summer rally on equity markets, and a lurch into another crisis in September.

  2. Risk ON baby. Go you good thing, GBPJPY and AUDUSD off to the races.

    The light at the end of the tunnel is an oncoming train but one has to make hay when the sun is shining.

    Volatility is the new black. Short term bull and bear swing and trend traders will make money, buy and hold investors will get slaughtered.

  3. Aristophrenia

    Lets see, Greece was forced to have elections because the country was at a standstill over riots due to Austerity measures.

    Country votes, 30% want a continuation of Austerity measures and this is a majority to form government, while 70% of the vote is spread over parties opposed to the Austerity measures – world breathes a sigh of relief, everything is great, no problem, back on course.

    Germany says no renegotiation of Austerity measures.

    I give it one month. If that.

    • Greece has a long history of authoritative regimes ruling for years with a 10% public support. They can deflate the country to 1970’s levels in 3 years, not a problem. Delusions of democracy only last a day.

  4. The election may have been a referendum on austerity but I don’t think most Greeks thought of it that way but rather, as a referendum on staying in the Euro. They probably don’t regard austerity as a function of the Euro monetary system itself and the treaty that underpins it.

    So at the end of this round, pro-bailouts have won – it will be interesting to see what happens when the millions who supported them realise exactly what it is that they’ve won. No more money until the harsher aspects of austerity that government has so far dragged it’s feet on implementing are driven home. The pro-bailouts now have such a mandate and the troika will expect them to use it.

  5. aus usd up 0.25% and the ASX up 60. Is that the best post ‘possible euro Armageddon’ rally possible? Hmmmm.

  6. MsSolarFelineAU

    Greeks voted to stay with the Euro as their currency *head hits desk*…more can-kicking – the road will end…but, NOT where they think the *end* is…

    If they go back to the Drachma, they can de-value their currency, we can have cheap Greek holidays and visit historical sites, Greeks and Greece generate income (whoops, sounding like an accountant here 😉 ) they can pay off *their* debt (it’s not theirs, it was made-up by The Squid Factory). There’s _only_ 11 million Greeks!

    Aristophrenia, I agree with you – I give it a month – if that.

  7. Alex Heyworth

    This victory should allow Francois Hollande to have explicit parliamentary control as he tries to steer Germany onto a more growth orientated path for Europe.

    I’ll be fascinated to see what Hollande thinks a “more growth orientated path” is. If it includes lowering the retirement age as a central policy, I don’t hold out much hope for its success.