ATHENS – As Greeks were set to vote on May 6 for a new government that could be another coalition administration, the country’s international lenders said if a stalemate results, that if a fragmented coalition government is elected without a clear mandate, then “an administration of technocrats should take over the running of the country in order to ensure stability.” A report from the Institute of International Finance (IIF) posed the option amid fears that angry Greeks would punish the country’s two ruling parties at the polls for supporting austerity measures demanded by the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) in return for two bailouts of $325 billion to prop up the country’s near-dead economy.
The New Democracy Conservatives and their bitter rival PASOK Socialists were running 1-2 in polls, but with only a combined 40 percent of the vote, far less than needed for either to form a government, raising the likelihood that another coalition government will have to be formed. The two parties were sharing power in a shaky hybrid government being overseen by former ECB Vice-President Lucas Papademos.
The Troika has insisted that a new government would have to adhere to the pay cuts, tax hikes, and slashed pensions that came with the bailouts, as well as beginning the firing of 150,000 state workers, privatizing state-owned enterprises, selling or leasing state-owned properties, and find another $15 billion in cuts, effectively tying the hands of whoever wins. The IIF represents international banks, whose members suffered 74 percent losses when former Finance Minister Evangelos Venizelos – now PASOK’s leader and candidate for Prime Minister – imposed a so-called Private Sector Involvement (PSI) deal to write down Greece’s debt by $134 billion. That locked Greece out of public markets.
The IIF report said that PASOK and New Democracy would have to form another coalition, although the Conservatives leader Antonis Samaras has rejected the idea. Samaras has said he wants to try to renegotiate the terms of the bailouts while Venizelos, who doubled income and property taxes and taxed the poor, promised he’d stop taxing Greeks if he won and would try to get more time to implement more austerity. The Troika has warned any attempt to tinker with reforms would lead to a second bailout of $173 billion – which came on the heels of a first for $132 billion – would result in the money pipeline being shut off.
The IIF said if the elections lead to a failure to form a coalition that instead of another election being called that technocrats like Papademos should step in and take over the country. German Finance Minister Wolfgang Schaeuble, whose country puts up most of the money for the bailouts on the EU side, said that Greece would have to “bear the consequences” if voters elected a government that would not stick to the demands. Anti-bailout parties were rising in the polls and could alter the outcome significantly. Earlier this year he suggested that the EU appoint a budget czar after suggesting that Greece wasn’t competent to manage its finances.
On the eve of the election, Schaeuble warned that Greeks must vote in favor of the austerity that has ruined the lives of many or Greece could be forced out of the Eurozone of the 17 countries using the euro and return to the drachma, a scenario many analysts said would complete the catastrophe besetting Greece and a tactic critics said was political blackmail. “The future government in Greece must abide by the country’s commitments,” Euro News reported him saying. “If Greek voters were to vote for a majority that does not honor those agreements, then Greece will have to bear the consequences of that.” Earlier, he said that the EU no longer believed Greek vows to reform. “Greek promises on austerity measures are no longer good enough because so many vows have been broken and the country that has been a ‘bottomless pit.’”
New Democracy spokesman Yiannis Michelakis issued a statement condemning the IIF’s report and suggesting that it was an attempt to interfere in the elections. “We are greatly surprised by the references to the Greek elections on May 6 in the IIF’s report,” he said. “We remind the authors of the report that we have a democracy in Greece and we do not need anyone’s instructions.” Greece is in the fifth year of a deep recession and austerity has created 21.7 percent unemployment and led to the closing of more than 111,000 businesses with projections of more dire consequences for Greeks from additional harsh measures that the Troika and IIF insist are needed. As part of its deal with the Troika, Greece already has agreed to all tax revenues needed to repay the banks to a special escrow account to pay them first, ahead of wages, pensions and social services. The debt write-down deal also put Greece under British law in the issuing of new bonds, ceding the country’s sovereignty.
(Sources: Kathimerini, Reuters, Bloomberg)