An hour before Greek polling stations closed Sunday evening, two voters, both clinging to jobs that pay them less and less, looked dejected. They knew Greece would remain an economic disaster zone no matter who was to win the election.
Ourania Papageorgiou, 34, who works as a civil lawyer, complained that her clients could no longer afford to pay the full invoice amount.
“I don’t think anyone is capable of fixing this economy,” she said. “Money does not accumulate here. I do not pay you, you do not pay someone else and on it goes.”
Her colleague, Yannis Delimichaslis, a 35-year-old accountant, admitted that Greece was its own worst enemy, but said the harsh, German-inspired austerity programs were destroying the economy. That’s why he voted for the radical left party, Syriza, whose campaign platform centred on killing or greatly diluting the austerity campaign, whose dominant features are wage cuts and tax hikes on those who can least afford them.
“The main parties don’t care about the poor people,” he said, referring to New Democracy and Pasok, the two parties that have shared power for the better part of four decades. “Syriza is the only chance to try something new. They will renegotiate the bailout program.”
Sunday’s election results mean the centre-right New Democracy, which took the most votes, gets first crack at trying to form a coalition government. Negotiations began Monday, with no assurances a stable coalition could emerge, threatening further turmoil through the euro zone and global markets. A similar attempt failed after an inconclusive election in early May, triggering the second vote.
“The challenges facing the Greek economy remain mountainous and the general feeling remains predominantly that the day of reckoning has merely been delayed,” said senior analyst Michael Hewson of CMC Markets.
Indeed, Greece remains an economic disaster three years after the start of the European debt crisis and two years after nabbing the first of two bailout packages – collectively worth almost €300-billion ($386-billion) – from the European Union and the International Monetary Fund.
The statistics are shockingly worse than the original forecasts. Greece’s gross domestic product has dropped almost 20 per cent since 2009 and, according to ING Financial Markets, will contract more than 5 per cent this year. The unemployment rate is 22 per cent, against the original forecast of 14 per cent. The budget deficit will come in at about 8 per cent of GDP, double the forecast.
Things could get worse because Greeks, struggling to make ends meet, are conserving cash by refusing to pay taxes, such as the value-added tax.
At the same time, the Greek government came up well short in its promises to reform the economy by, for instance, making it easier for entrepreneurs to start businesses and by busting open the professional cartels, from truck drivers to pharmacists. It also failed to modernize its clapped-out tax collection system, allowing the rich to get away with paying obscenely low tax rates.
“While Greece has averted a messy near-term euro zone exit, challenging days for the euro still lie ahead,” warned Emanuella Enenajor and Avery Shenfeld of CIBC World Markets.
“The waning rally in risk assets today reflects doubts about Athens’ ability to achieve its austerity goals, concerns about other troubled members like Spain and fears that the euro zone will be unable to grow its way out of its fiscal and economic perils.”
Economists think Greece needs more lenient bailout terms from the EU and the IMF, knowing full well that Germany, the effective overlord of the bailout programs, would never allow them to be greatly diluted (Germany said as much on Monday). Athens has to do its part by redoubling structural reform efforts, with the help of EU-IMF technical advice, to make the economy more competitive.
Above all, it needs a stable government to implement any new strategy or modified bailout program. Without one, it would be unable to negotiate its next injection of cash, which will be on top of the agenda at an emergency EU summit on June 28. But forming a government in a fractious parliament is not going to be easy.
“At the end of this, the government will be fragile and euro membership is likely to remain an open, unanswered question,” Elsa Lignos, currency strategist at Royal Bank of Canada’s investment arm in London, said Monday.