Greek Election: The Next Day for Greece

The closely-watched June 17th elections in Greece brought a sigh of relief to financial markets and political commentators worldwide. Growing up in Greece, never could I have imagined that the small country of 11 million people could be at the center of attention, yet when I tuned the TV in the small hours of Monday morning, both CNBC and BBC were broadcasting from the all-too-familiar sunny roof deck of the iconic Grande Bretagne Hotel in Syntagma Square, with pundits arguing what the next day will bring for Greece.
The results of the election show a deeply divided electorate. With the abstention rate very high at almost 40%, and approximately half the Greeks voting for anti-memorandum parties, the winner of the election, the center-right New Democracy party and its leader Antonis Samaras do not have a popular mandate. The most likely scenario is for a weak coalition government that will attempt to keep implementing the suggested highly unpopular policies of the memorandum and as a result might or might not last its full four-year term. Will it re-negotiate the terms with Europe? Will anything change? Or will that mean more austerity and pain for the average Greek citizen?

An often-missed point regarding the policies of the memorandum is that they do not necessarily impose austerity. The EU-backed bailout calls for structural reforms, liberalization of the Greek labor market, opening of closed or restricted professions, privatization of public utilities, shrinking of the gargantuan public service sector, improvements in the tax collection system and elimination in the red-tape when it comes to starting a new business. All those measures, modeled after the German re-unification in the early 90s, target the development of a competitive private sector that will generate economic growth, raise productivity and eventually lift Greece out of its perpetual recession. The more structural reforms Greece could implement, the looser the terms of the bailout would become.  That was the carrot end of the bargain. When agreeing to the memorandum, what the EU/ECB/IMF Troika failed to comprehend is the inability or unwillingness of the Greek state machine to implement structural reforms to the economy. It is the failure of the Greek political apparatus to implement those measures in a timely fashion that brought about the highly controversial austerity measures of across-the-board wage and pension cutting. When the Troika realized that the Greek government was not able or was unwilling to implement the structural reforms, they used austerity as the stick. Unfortunately, the whole state system of Greece is still captive to special interests at the expense of the whole nation.

So the question remains whether the new government will be able to implement the much-needed liberalization of the Greek economy. To answer this question, one needs to look at whether anything has changed. For one, the parties that will probably form the coalition government (ND, PASOK and maybe DIMAR) represent the old political establishment that ruled Greece for the last thirty-something years. They are comprised of the same people and are captive to the same interests. Professional associations remain intact and strong.  The main opposition will be the left-wing SYRIZA party, that vows to protect the established privileges of public-sector workers and will oppose any change that will shrink it. It is only reasonable to assume that the state machine will try to self-preserve itself at any cost and oppose any reforms that will threaten its own existence.
So where does that leave Greece? Probably in the same condition it was before. The new government will remain caught between a rock and a hard place. Unable or unwilling to implement the right measures, weak politically and with continued pressure from Europe, it will maintain the same unpopular policies of indiscriminate cost-cutting. Domestically, it will be pummeled by an opposition that will accuse it of failure to change those failed austerity policies. It will lose all its support, and it will be lucky to survive its four-year term. In the meantime, the average Greek citizen will continue to suffer the pain induced by the deflationary spiral. Eventually, when the excesses of the bubble have worked themselves out of the system, it will turn to growth but that can easily take another five to ten years.
*Alex Mizan is the Director of American Hellenic Council.