The new Greek government needs EU support

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Although the establishment of a coalition government in Greece marks an important step for the country to escape the danger of descending into political and economic turmoil, the new government faces a number of challenges that will weigh heavily on its stability and, ultimately, on its success, argues Anna Visvizi.

Anna Visvizi is a political and economic analyst and associate professor at the American College of Greece (DEREE).

"Following a lengthy period of uncertainty as to whether Greece will have an elected government or not, on 20 June, Antonis Samaras, the leader of the centre-right New Democracy party (ND), was sworn in as a prime minister of a coalition government.

The coalition consists of ND, the socialist PASOK and the Democratic Left. Although the exact composition of the coalition government has not been set yet, the fact that Samaras succeeded in forming the coalition constitutes an important step for Greece to escape the danger of descending into political and economic turmoil, and possibly a drift away from the eurozone and the EU.

In a similar manner, the establishment of the new government induces hope that more accurate solutions to the diversity of problems tearing Europe apart these days will be found and a prospect of stability will be created across the eurozone and the EU. That Samaras was given a viable opportunity to form a government is an outcome of the 17 June 17 parliamentary elections.

Clearly, the results of the 17 June election created much more room for manoeuvre for the winning party to consolidate the political scene than the 6 May ballot that left Greece drifting dangerously into the unknown.

Samaras’ success notwithstanding, the new Greek government faces a number of challenges. The most important of them includes the need to restore growth of the economy so that the social sentiments improve and the new government wins social mandate and an approval for the reform process.

Greece’s economy is in a deep recession and the political system is in a crisis. To a large extent, both crises are the result of the fiscal adjustment programme defined in the memorandum of understanding (MoU) accompanying the financial assistance package that Greece received in May 2010.

The programme did not address the major problems of the Greek economy. That is, rather than limiting the size of the public sector and introducing reforms aimed at withdrawing of the state from the economy (via privatisation and liberalisation), the entire burden of fiscal adjustment was channelled via the private sector through continuous increases in taxation and through an introduction of several new tax measures.

Restoring growth in Greece requires a complex set of economic policy measures. These measures resemble the process of economic transition as experienced by the countries of Central and Eastern Europe in the 1990s, and include: decreasing taxation, privatisation, downsizing of the public sector, deregulation and liberalisation, and creation of incentives for the inflow of FDI.

However, the reform process in Greece will be taking place in a climate of social dissatisfaction, disenchantment with the so-far fruitless reform process, and severe opposition from specific stakeholders that seek to protect their vested interests. 

The second challenge that the new Greek government faces is consistent with the need to renegotiate the policy mix underlying the MoU. As ND has repeatedly stressed, the general goals and objectives of the MoU do not need to be changed. These include fiscal consolidation, and this is exactly what Greece needs.

However, the way of attaining these goals requires a serious rethink. That is to say, the MoU needs to be renegotiated in a way that will enable the burden of fiscal consolidation to be channelled via the public sector rather than via the already squeezed private sector.

The possibility of launching discussions on amending some terms of the MoU stumbles against a communication challenge. Attempts to open discussions on changing some provisions of the MoU will not be welcomed by Greece’s European and international partners. There has been a lot of confusion and misunderstanding as regards this issue.

One of the most important misunderstood terms of reference that will weigh heavily on the future talks is the meaning of austerity. The German news media in particular emphasise the notion of a “savings programme” implying at the same time that a relaxation of this programme is not possible. The problem is that when ND, and for that matter also other members of the would-be coalition government, talks about renegotiating the terms of the MoU they only mean changing the policy-mix designed to attain savings.  

Clearly, several sources of domestic instability exist in Greece and they will affect the work of the new government. Having declared its position as an active opposition, the leftist Syriza is one of the most likely sources of political turbulence. On the one hand, the 71 parliamentarians of Syriza will seek to block any law proposal by the new government. On the other hand, given their electoral base, Syriza is likely to organise massive protests, demonstrations and strikes which could once more paralyse the country.

In a similar way, the Independent Greeks party that only recently separated from ND is likely to stir the waters of the political debate in Greece too. Although the ultra-right Golden Dawn party declares itself as anti-MoU, it is unlikely that they will be able to significantly influence the reform drive.

The specific agenda of the party and the spectacular electoral success expose this party’s lack of expertise and of political experience of the majority of its parliamentarians. It is also to be expected that due to the characteristics of this party, other members of the parliament will seek to contain them.

Finally, the question is of how stable, how consistent and how effective the would-be coalition government will be. ND will be an undeniable leader of this coalition with Samaras having the vision, the knowledge and the experience necessary to avoid mistakes. It is uncertain, however, how the remaining coalition partners will behave in the long-run.

Finally, the new Greek government will have to address the challenge of Greece’s credibility and image. On the one hand, the deteriorating fiscal position of Greece and thus its inability to fulfil its commitments towards its creditors shattered the credibility of the Greek state.

On the other hand, Greece’s credibility and image were ruined by purposeful statements by several politicians in line with which Greece – inaccurately so – has been touted a country of tax dodgers, with tax evasion being presented as the main culprit behind Greece’s economic crisis.

The truth is that while tax evasion does exist in Greece, using the tax revenue ratio as a percentage of GDP measure, Greece fares comparably to other EU countries of which nobody would dare to say that they are corrupt. Thus, the challenge for the new government is to reverse the tides of Greece’s negative publicity.

The establishment of the new coalition government with Samaras at the helm bears a number of opportunities for Greece’s European partners. As this government faces a number of challenges, it is necessary that it be entrusted with the support of the EU leaders in order to boost its credibility abroad, while at the same time to allow for a consolidation of the domestic popular support for the reform process."

This contribution is based on the author's earlier analysis titled "The June 17 elections in Greece: domestic and European implications" published by the Polish Institute of International Affairs, available at: www.pism.pl

 

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