The Greeks Are on the Brink Once More

Can the Greeks accept yet more austerity?
A closed metro station during a 24-hour strike in Athens on Nov. 5 Photograph by Petros Giannakouris/AP Photo

Not too long ago, the only people who would watch votes in the Greek Parliament were those paid to do so as part of their jobs. Over the last couple of years, though, ballots in the historic and often raucous Parliament House have become required viewing for audiences around the world. It seems that every few months Greece’s future hangs on the voting intentions of a handful of deputies that hardly anyone outside their constituencies knows. This week, the world is in for another tension-filled episode of this particular Greek drama.

Greece’s 300 MPs are being called upon to approve the structural reforms and fresh spending cuts demanded by the country’s lenders. If the bills pass, the euro zone and the International Monetary Fund will allow the disbursement of Greece’s next bailout installment of 31.5 billion euros ($40 billion). However, some coalition MPs have already said they will not approve the measures. If the three-party government fails to get the majority it needs, it will likely collapse and Greece’s relationship with the euro will enter a new realm of uncertainty.

In two divisive elections this summer, Greece’s traditionally dominant political forces, center-right New Democracy and center-left Pasok, just about fended off the rising anti-austerity leftist party Syriza and clung to power. They had to call on the support of the pro-European Democratic Left, though. This means the stakes are higher for the upcoming parliamentary votes than they have ever been before.

“The outcome of national elections led to a fragile coalition government, which for the first time in recent history had a main mandate to keep Greece in the euro zone, an issue that was never in question in the past,” says Manos Giakoumis, research director at Euroxx Securities, a financial-services firm in Athens. “International lenders as well as the leaders of New Democracy and Pasok view the upcoming votes in Parliament as an answer to this indirect question of whether Greece should remain part of the euro zone or not, something like a referendum.”

The government has heightened the intensity of these votes by piling all the structural reforms and austerity measures—worth 13.5 billion euros, or 4.5 percent of GDP—into one draft law. The legislation, which runs to more than 500 pages, was submitted to Parliament on Monday evening, giving MPs about 48 hours to read it before the ballot on Wednesday night. This vote will be followed by one on the 2013 budget at midnight on Sunday.

Prime Minister Antonis Samaras, the leader of New Democracy, is looking for a positive outcome in time for a meeting of euro zone finance ministers on Monday, Nov. 12, when the release of the Greek bailout should be rubber-stamped. But unrest within the coalition could scupper the premier’s plans.

Some deputies are unhappy about certain reforms demanded by the so-called troika of the European Commission, European Central Bank, and IMF, while others are loath to approve a new round of austerity knowing that it will guarantee a deepening of Greece’s five-year recession. The budget foresees a contraction of 4.5 percent of GDP next year and unemployment leveling out at almost 23 percent. Some analysts regard these predictions as optimistic and forecast the recession to be far deeper and the jobless rate, already at 25 percent, to rise further.

Democratic Left leader Fotis Kouvelis has indicated his party will not back the structural reforms because he opposes further changes to labor legislation, which has already been deregulated substantially over the past two years. One of the party’s 17 lawmakers has already quit and there are several others who have suggested they might leave if Kouvelis gives in to pressure to change his stance. On Monday, a potential compromise emerged by which Democratic Left MPs would vote “present” on Wednesday but in favor of the budget on Sunday. This would prevent Kouvelis and his deputies having to leave the coalition and thereby weakening its legitimacy.

Pasok, which had 33 seats in Parliament, also lost an MP last week after the departing deputy told party chief Evangelos Venizelos that he would vote against the bill. Since then, two more of the party’s lawmakers have said they will not support the measures. Ex-minister Andreas Loverdos said he feels he is being blackmailed into supporting the package.

Samaras met with his 127 MPs on Sunday and urged them to back the measures, arguing that this would secure Greece’s place in the euro zone. As of Monday night, the maximum votes the coalition could secure were 173 out of 300. A decision by the Democratic Left not to back the reforms would leave the government with 157 votes, still a majority but one slim enough to be threatened by desertions from Pasok or New Democracy.

To add to the tension, Alexis Tsipras, the leader of leftist Syriza, which has placed first in all of the opinion polls carried out since last month, issued on Sunday a call for new elections and more popular resistance to the government’s plans. Labor unions begin a 48-hour strike on Tuesday.

However, Giakoumis, the financial analyst, argues that receiving the next loan tranche, of which 23 billion euros will go directly toward recapitalizing Greek banks, is “probably the last chance for a rebound of the Greek economy.”

“Although recapitalization will not lead to a direct liquidity boost in the economy, it will help restore some of the lost confidence in the markets,” he says. “But potentially the clearest message would be to eliminate Greek euro exit scenarios. The approval of the disbursement should be the first step of a wider process, which would involve clear commitment by international lenders and restoring growth and confidence domestically.”

    Before it's here, it's on the Bloomberg Terminal.