Financial markets staged the usual relief rally overnight at what looked like good news from Europe. It appears that the pro-bailout parties New Democracy and Pasok won a parliamentary majority in Greece, so that if they can agree on a coalition, Greece will have a government that can work with the EU.
But these relief rallies have been fading faster as investors grow more skeptical about Europe: the good news somehow never turns into real progress toward fixing the mess. The Greek elections are more of the same and the news wasn’t a day old before the market euphoria died.
There are three reasons why the Greek election doesn’t help. First, Greece’s economic problems were overwhelming and insoluble before the election, and they are overwhelming and insoluble now. The bailouts have been large enough to antagonize opinion across Europe, where Greeks are seen as shiftless, incompetent liars — but they are neither big enough nor well enough designed to give Greece a reasonable chance of emerging from its vale of tears in a sustainable time frame. Nothing in yesterday’s vote changes that. Greece is still headed over the cliff.
Second, the elections will not give Greece a strong government. It is not even clear that they will give Greece a government at all, but if Pasok and New Democracy agree on terms (and at the moment they don’t) a new coalition will lack the mandate to impose the painful measures and reforms that Brussels demands.
Although New Democracy and Pasok have a majority of seats in the new Parliament, they did not get the majority of votes. The party that gets the most votes in Greece gets a “bonus” of 50 seats (out of a total of 300 seats) in Parliament. New Democracy got 29.6 percent of the votes and 129 seats with the 50 seat bonus; Pasok got 12.3 percent of the vote and 33 seats. A third not-dead-set-against-the-bailout party, Democratic Left, got 6.2 percent of the vote and another 17 seats. Add them together and you get 179 seats, a solid parliamentary majority, but only backed by 48.1 percent of the popular vote.
Read More at The American Interest. Walter Russell Mead, Via Media.
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