Grexit or Berlinchange?

Alexis Tzipras is putting in agitation Berlin and Brussels, where it would be preferred that the Greek elections have the only effect of choosing who should obey the Troika.

Next political elections in Greece pose a series of questions to which it is not easy to answer. There are many variables involved. Let's discuss some of them.

Who will win the election? The answer in this case is easy: SYRIZA, the coalition of radical left groups. As most voted party SYRIZA will be entitled to a prize of 50 seats, one-sixth of the 300 Parliament seats. However this does not mean that Alexis Tsipras will gain the majority. In fact, to achieve (at least) 151 seats, SYRIZA must obtain 101 over 250 seats, that is, 40.4%. Polls accredit SYRIZA above 30%, but this is not enough. However it is not necessary to arrive at 40%. If various formations will not get the 3% threshold, the sufficient percentage may drops below 40%. But it is still likely that Tsipras will need a dozen seats to reach the majority.

What alliance for Tsipras? Here things are more complicated. Excluding the hard-core Greek Communists, and taking account of the crisis of DIMAR, a center-left party, who pays the support provided for a time to Antonis Samaras government, one option may be that of the new Movement of Democratic Socialists (KIDISO), founded by George Papandreou, right at the beginning of 2015. Papandreou left the PASOK, the Greek socialist historical formation with which he had won the election in 2009 with 43% of the votes.

The party, led by Venizelos after the resignation of Papandreou, has been completely dominated by New Democracy, the right-wing party. The Papandreou’s choice might even lead to the disappearance of PASOK from Parliament. KIDISO is accredited by the first surveys around 5%, even if these percentages have to be verified. No doubt Papandreou, while much more moderate than Tsipras, is animated by a spirit of revenge on Berlin and Brussels, who humbled Papandreou by requiring him to withdraw, in 2012, a referendum on the euro that he had proposed.

What are SYRIZA proposals? In summary two: a robust cutting of public debt, and the  leaving of austerity policies. Both requests put in agitation Berlin and Brussels, where it  would be preferred that the Greek elections have the only effect of choosing who should obey the Troika.

As for the debt, now held for the most part by the European institutions and the IMF, an alternative solution could be that of a long run consolidation, even irredeemable, and also a reduction in the interest rate. In this way, the resources allocated to the debt would be reduced, and Greece would not have the problem of finding the necessary resources to roll over the debt. According to a study of the Greek forum Macropolis, 50% of international loans granted to Greece were destined to pay debt service, i.e. interests and renewal of maturing bonds. Probably Berlin could agree on this hypothesis.

On the contrary it is more difficult to find the solution with regard to the abandonment of the policy of ultra-austerity imposed by the Troika, in obedience to the dictates of austerity expansive and the Teutonic will to impose exemplary punishments. The Troika called in four years the launch of 800 restrictive measures to Greece, getting the collapse of a quarter of Greek GDP. The IMF itself has admitted the mistakes. However for the European right, not only the German one, to admit this fact of clear evidence, is equivalent to a declaration of failure. Remember that last year the Greek government was discussing with Troika because of the claim of an additional cut of 2,5 billions.  

Up to now the financial turmoil is limited to Greece, apart from the falls of the European stock exchanges. The rates of Italian and Spanish government bonds remained broadly stable, unlike the Greeks ones. Financial markets think then that some solution will be found, and that the QE will finally launched by ECB. But if the negotiations between the Troika and Greece would became complicated, and if the Bundesbank and the German Constitutional Court put obstacles, things could change. To unnerve financial markets there are this year also political elections, in Spain and  in Portugal.

Ruggero Paladini

Economist - Professor of "Scienza delle Finanze" at University "La Sapienza" Roma; Member of the Economic Board of Insight -