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Getting
Europe's mainstream politicians and appointed technocrats to agree to
bailouts and austerity was actually the easy part. The real challenge for
these guys will be holding onto their jobs -- and preserving the deals
they've cut -- in upcoming elections.
Voters, it
seems, aren't convinced that that a depression is the only solution to the
euro's design flaws. Faced with the immediate reality of poverty, they're
listening to formerly fringe voices calling for a better deal, either in the
form of more help from Germany (via the European Central Bank) or a quick
exit from the euro zone and a return to national monetary sovereignty.
Greece, of course, is first in line:
Greece's
Fringe Parties Surge Amid Bailout Ire
ATHENS--Weeks after agreeing to an agonizing bailout deal with Europe, Greece
is splintering politically ahead of national elections, raising the risk that
it won't be able to make the economic sacrifices still needed to keep it in
the euro.
The election,
not yet scheduled but expected in April or May, is shaping up as a public
revolt against Greece's political establishment, which has backed the
austerity policies that are the price of financial life support from Europe
and the International Monetary Fund. Mainstream politicians are increasingly
painted as leading Greece into a debt trap, then impoverishing it in trying
to escape.
Half the
electorate plans to vote for radical opposition groups, ranging from
Soviet-style Communists to anti-immigrant neo-Nazis, according to recent
opinion polls. That could lead to growing political instability even if the
established parties cling to power, undermining Greece's ability to enact the
drastic spending cuts and economic overhauls its creditors demanded.
"Most
people here think the two big parties shouldn't have power anymore,"
said Costas Papaioannou, a 32-year-old teacher of
German at a night school who used to be a loyal New Democracy voter but
"not anymore."
Mr. Papaioannou said his German classes have "never been
so full, because many people who want to emigrate are studying the
language."
He said the
state of the country depresses him. "We're furious at what is happening.
Everyone is scared, and without hope."
Signs of
economic collapse are more visible in Athens's riot-scarred center, where
growing numbers of homeless people huddle under blankets outside closed
stores. Burnt-out buildings exude a whiff of charcoal from violent protests.
"For rent" signs adorn broken marble facades on once-bustling
boulevards, while long lines of taxis wait for fares.
The austerity
measures "taken under pressure" from Germany "are
exceptionally adverse for the Greek people," said Giorgos
Karatzaferis, head of the nationalist party Laos.
Extra austerity measures due in June "are completely repulsive," he
said, vowing to fight them.
"The
reality is that after the elections, Greece will be an absolute mess,"
said Anthony Livanios, a political risk consultant.
"With no clear majority in Parliament, a very high far-left
representation and rising social unrest, this is a recipe for chaos," he
said.
The election
will be Greeks' first chance to choose their rulers since the debt crisis
began in late 2009. Since last fall, Greece's government has been led by an
unelected, technocratic prime minister, Lucas Papademos,
supported by the two established parties: the conservative New Democracy
party and the center-left Socialists, known as Pasok.
Mr. Papademos's mission was to secure a €138 billion
($183 billion) loan package from Europe and the IMF to keep Greece afloat. On
Monday, a government spokesman said elections will be held on April 29, May 6
or May 13.
New
Democracy, led by Antonis Samaras, is likely to be
the largest party in the new Parliament. Many analysts expect it to form a
bipartisan coalition with Pasok. But the two
parties' combined support is only 35% to 40%, according to several opinion
polls. In Greece's 2009 elections, they won around 75% of the total vote. The
decline shows the price they are paying for supporting unpopular austerity
policies, and for their past misrule.
To get the
bailout, Mr. Samaras and Socialist leader Evangelos
Venizelos both had to promise Europe in writing that they would continue the
austerity measures. Among other promised steps, they pledged to pass
legislation by June that will cut public spending by an additional 5.5% of
gross domestic product. Economists say the cuts will further depress the
Greek economy, which has contracted 14% in the past four years and is
expected to shrink by a further 5% or more this year.
In spite of
shaving more than €105 billion off its bond debt in this month's
default and restructuring, Greece's total public debt is still around
€330 billion, or more than 160% of GDP, a level most economists say it
can't repay. Greece's budget deficit is stuck at around 10% of GDP, thanks to
the shrinking economy.
Spain,
meanwhile, might be next:
Spanish
PM Mariano Rajoy's election defeat fuels bail-out
fears
Traders were alarmed by signs that Mariano Rajoy was
losing popular support for his programme to reduce
Spain's burgeoning debts, without which the country may need a Greek-style
bail-out.
The prime
minister's PP party won 50 seats in the crucial Andalusia elections but
failed to win a majority as the opposition leftist PSOE party won 47 seats.
Alastair
Newton, political analyst at Nomura, said: "Failure to win in Andalusia,
whose regional deficit was more than double its 1.3pc of Spanish GDP target
for 2011 and which voted against the central government's 1.5pc target for
this year, represents a potentially serious setback in efforts to rein in the
total national deficit to 5.3pc." He added: "The outcome in
Andalusia may also make the challenges PP faces at the national level even
more daunting."
Mr Rajoy faces a tough week,
with a general strike scheduled for Thursday followed by Spain's budget on Friday.Concern over Spain's ability to manage its debts
has been mounting and is likely to be the focus of the eurozone
finance meeting in Copenhagen on Friday.
Some thoughts
Can deep cuts
in public spending coexist with regular elections? That's the question that
will decide the fate of the euro zone, and the answer right now looks like a
big no. A fair number of voters are starting to think that leaving the euro
zone would get the pain over with more quickly than suffering through a
decade of shrinking GDP and evaporating jobs. Put another way, when things
get sufficiently bad the typical person starts thinking "what have I got
to lose?" and voting for change, any change.
The problem
is that the European financial system is so interconnected that even one
small country leaving might spark a bank run in the other likely candidates,
which might push the whole continent into political and economic chaos. Given
this choice, one has to wonder if future election results will just be
ignored, with the people in charge simply declaring an emergency and going on
with their plans.
From here on
out every major election is an "event risk" that threatens the eurozone as a financially viable democracy.
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