After the election: crisis postponed, not averted.

An update to the article published in Open Magazine:

Last night, the conservative, pro-bailout and pro-austerity New Democracy party won the elections, but not decisively enough to have an outright majority. To be able to form a government, they will need to form a coalition with one of their opponents. The second vote-getter, and close second in the elections, was the upstart, radical left party Syriza. It’s leader, Alexis Tsipras, has ruled out any coalition with any pro-bailout party, and so a coalition will likely be formed with PASOK, and one of the other, smaller, leftist parties.

While the election of New Democracy averts the immediate crisis of Greece leaving the euro, it in no way changes the long-term picture. The requirements of Europe’s bailout haven’t been fully implemented, and some of the most severe cuts are yet to come. These will be very difficult to get passed into law, and if they are passed, will likely cause a violent reaction on the streets in the coming months. But the larger picture is more disturbing. Even if the cuts are implemented, Greece will still ultimately be unable to live up to its commitments. It will not be able to pay back its debts in full, even at the current levels where much have been forgiven, and it will not be able to grow its economy effectively under the burden of such severe austerity measures.

The reaction of international markets to the Greek election struck me as quite rational. An initial sense of optimism because the immediate crisis was averted, followed by a pullback and a dose of reality, because even with the election of the conservatives, there is no obvious way forward for Greece within the euro. We’ll be exactly here again a year or so from now, if not sooner, and between now and that time, Greece will continue to suffer. The only chance that a deeper crisis can be averted is if Germany and the rest of Europe acts proactively with real stimulus measures designed to actually grow Greece’s (and Europe’s) economy. I’m not holding my breath.

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