Wednesday, May 9, 2012
Greek Election Results: Greece May Pull the Whole EU Into a Nightmare Spiral
This article originally appeared on PolicyMic on 8 May 2012.
There is a school of thought that holds when something is so broken or has been repaired too many times, it is a better option to break it up completely and start all over again. If this was the goal of the average Greek voter in the Sunday elections then their mission was accomplished. Unfortunately, the vote was not this nuanced but was instead based in failure to accept that the Greek system must change. The larger fear is that Greece may drag Europe and the euro down with it.
Greek voters roundly rejected the two main parties, the center-right New Democracy and socialist Pasok, in favor of the far-left Syriza and far-right Golden Dawn, more than doubling their seats in Parliament. New Democracy remains the largest party, but no party gained a majority to govern alone and the first attempt to form a coalition has failed. If no government can be formed in the coming weeks, new elections will be held in 30 days.
The outgoing center-right government agreed to accept a raft of reforms in exchange for a second bailout after the first in 2010 proved not to be enough. The negotiations, led by Germany and France, and the uncertainty they created led to worldwide economic turmoil. The election results threaten to undo the agreement. Both Greek far-left and far-right parties roundly reject the so-called "austerity" reforms, the acceptance of which formed the basis of the agreement.
Greeks retire at 53, compared with mid-60s in other EU states. Public employees have gotten used to receiving annual bonuses of one or two month’s pay without a performance connection. Corruption is widespread. Tax evasion is estimated to cost Greece 5 billion euros annually while it is far below many neighbors in revenue collection. It is the lowest ranked European economy on the Index of Economic Freedom and Global Competitiveness Index.
The Greek government is an absolute mess. The stipulated "austerity" reforms, such as raising the retirement age to 67, spending cuts, and increasing public revenue, are hardly austere at all. They’re rather necessary reforms that will bring Greece in line with the rest of the European Union. In exchange for doing what they should have already done, the government will receive financial aid, funded mostly by German taxpayers.
But it was these reforms that largely caused Greeks to take to the streets and this week vote for extremist parties who campaigned on a platform against the agreement. Without the agreement there will be no bailout; without the bailout there will be no economic stability. Without economic stability, the situation will continue to deteriorate. Greece seems to be on the path toward a textbook example of a downward spiral. To make matters worse, the common currency and market of the European Union mean that economic instability in Greece will translate to instability in the euro and European markets.
It is one thing for Greeks to stick their heads in the sand when it comes to the necessity of belt-tightening in their own Hellenic Republic, but it is quite another to do so when refusal to recognize the need for reform will drag Europe down with it. If Greeks cannot do what is in the best interests of the European Union then perhaps their membership ought to be reconsidered
Posted by Unknown at 8:54 AM