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It won’t be easy for Greeks

Published on July 9, 2012 by: in: Politics

The Greek elections’ outcome came with a sigh of relief for Europe. Of course, European decision makers were prepared for the back-up plan, in which they would need to talk to the leader of populist SYRIZA, but those talks would be much more difficult and less predictable as to their final outcome. However, it will not be easy and pleasant with the winners of Sunday’s election either. The new / old coalition – with SYRIZA right behind, which has already announced street protests – will be eager to negotiate concessions in terms of provided help. Moreover, the present leaders of the victorious party, unfortunately, do not guarantee a consistent reform agenda. Suffice it to say that a few months ago the leader of New Democracy did not want to support the terms of an agreement with Europe. Most importantly, he shares responsibility for the current state of the Greek economy – caused by the irresponsible decisions of the establishment of Greek political parties. They are not reformers, but they are more predictable than far-left SYRIZA. Thus, here comes a relief after Sunday’s elections in Greece.

Now problems will begin again. The political parties that form the new government will have to, along with representatives of the EU and the IMF, find how to get out nicely of demands for easing the conditions for aid. The plan may not be substantially mitigated, because it would be an encouragement to radical movements in other countries to act against the agreed package of reforms. On the other hand, the lack of any measures that reduce the program is what populist SYRIZA really needs to show itself as the only party able to make changes in the terms of assistance. Either way Greece will still be on a drip and stay reluctant to implement some part of the reform program. So far, however, we can not see new leaders in the government coalition who would more decisively and yet in a short period of time implement planned changes. Greece needs a deregulation of production, labour market, privatization, that is, solutions that increase flexibility and competitiveness of that economy. Unless these changes are quickly and decisively implemented, the future will be dominated by a decline in revenue and continuing street protests. Unfortunately, the second option seems to be the most probable, including the risk of early elections.

Over the next few years, Athens will face the risk of leaving the eurozone. One should not expect that the project of federalist Europe within the euro area could minimize that risk. The risk is simply a political, not economic or institutional matter. Europe, however, in the name of maintaining the unity of the single currency, will do everything so that even the smallest country does not leave the zone. An uncontrolled exit from the single currency zone by small Greece would be seen by many as the beginning of the process of disintegration of the euro area. It would be difficult to justify why Greece is to be an exception – the world financial markets would appoint the next candidates to follow the same path. Without a doubt, it would be a huge failure of the politicians responsible for Europe today, being those who were not able to stop the process of disintegration.

picture: Gwydion M. Williams

There would be some truth in it, largely because today’s tense situation in the south of Europe stems from the lack of firm decisions two years ago. I remind that in 2010 the European leaders, instead of leading to a rapid debt restructuring and the introduction of the rehabilitation program, started with the aid package, which later proved to be inadequate. Greek politicians have become accustomed that everything can be cancelled and instead of engaging the IMF immediately, with a proven program of recovery, they involved the EU in this process … a political institution, not an economic one. The longer that situation lasts, the greater the relationship between individual countries and more blackmail from the populists. An example of such an attitude was last week’s SYRIZA leader, who said that the day after Greece leaves the eurozone, the entire area will fall apart. Both parties are aware of the risks, they are balancing on a thin rope. Now it seems that the rope has become a bit more stable, but still it is only a rope you can easily toss.

Translation: Martyna Kozik

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About Ryszard Petru

Economist, until recently director concerning strategy in BRE Bank. He was also an advisory to Leszek Balcerowicz and a specialist of the World Bank.

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