Brussels, 14/06/2012 (Agence Europe) - On Sunday 17 June Greece will be holding new general elections which will amount to a referendum on whether the country should remain in the eurozone. Brussels is worried that this new election, the second in two months, will not lead to a government with enough political stability to pursue the austerity programme that began with the first Greek financial bailout of 2010. If voters reject the austerity policy en masse by voting for the far left Syriza party, then this would open a new period of uncertainty to the eurozone.
On Friday 15 June, a European Commission spokesperson said that the Greeks would have to vote before comments could be made. The official EU line since the most recent European summit has been that Greece should remain in the eurozone (as long as it respects its commitments under the second financial bailout agreement - see EUROPE 10619). The French president, François Hollande, and the Italian prime minister, Mario Monti, repeated this at the Franco-Italian summit in Rome on Thursday (see separate article), but on the same day, the Slovakian prime minister, Robert Fico, threw a cat amongst the pigeons by saying that Slovakia would ask Greece to leave the eurozone if it failed to keep its promises.
Brussels will try to decide on a common message for the media irrespective of the outcome of the elections. The Eurogroup is prepared to hold a videoconference (like last Saturday when it agreed on €100 billion of financial aid to bail out Spanish banks) and the presidents of the European Council (Herman Van Rompuy) and the European Commission (José Manuel Barroso) will make a joint statement from the G20 Summit in Los Cabos (Mexico). On Friday Van Rompuy convened a video-conference for European leaders attending the Los Cabos summit.
Behind the scenes, there are talks about what to do if Greece says it will not respect its commitments. A freezing of bank withdrawals (the media talk about between €500 million and €900 million a day) and a closing of borders have been discussed. The Financial Times says talks have taken place about easing the second bailout scheme's austerity conditions, with a reduction of interest rates on the bailout loans, for example, or a postponement of the repayment deadlines. Brussels does not want to play into the hands of parties hostile to the austerity programme, but Hollande said in Rome on Thursday that the second Greek bailout could be re-negotiated. European sources say this is news to them. At the ECB, Mario Draghi said on Friday that the bank was prepared to provide liquidity as necessary.
Moratorium on the Greek memorandum. Tsipras, the leader of the Syriza party, said things would change on Sunday in both Greece and Europe in general. His party is currently neck-and-neck with the Conservative party New Democracy. Syriza wants Greece to remain in the eurozone, but is unhappy with the austerity programme. Its election manifesto includes abolishing pay cuts and pension cuts, ending the privatisation programme, restoring collective bargaining, suspending loan repayments, kicking out the European Commission's taskforce monitoring state finance and providing advice about reform measures. All this would be financed by clamping down on tax evasion, higher tax for the rich and making Greek shipbuilders pay their way. Syriza also promises to cut public spending to 44% of GDP and to make better use of public money.
Both of the traditional parties, New Democracy and PASOK (the Socialist party), are being punished for the way they have been managing Greece since the generals were ousted. They are both promising to change the second bailout programme and the austerity measures they agreed to in the past, rejecting the target of reducing the deficit to 3% of GDP by 2015. The head of New Democracy, Samaras, said his party would change the memorandum.
The second bailout, for €130 billion, was approved in March 2012. Some €28bn of that will come from the IMF. The first bailout gave the country €73 billion (see EUROPE 10565). The European section of the aid comes from the EFSF at present, but formerly took the form of bilateral loans. Greece's private lenders agreed recently to a voluntary write-down of their Greek bonds to the tune of €197bn in total (96% of all bonds) to reduce the country's debt to 117% of GDP. Some €40bn has already been paid out, most of it being used to recapitalise banks (see EUROPE 10612). There has been no progress in implementing reforms or the privatisation programme due to political instability. By the end of the month, the new government will be expected to meet with its international lenders represented by the troika and approve €11bn of spending cuts over two years. The Greek economy has been shrinking since 2009, having shrunk so far by some 20%. In the first quarter of 2012, the recession stood at 6.5% of GDP. Unemployment currently stands at 22.6% of the working population, rising to 52.7% for people under the age of twenty-four. (MB/transl.fl)