How Fast Things Change: Greeks Go to the Polls

The Greek government stabilized when the nation’s long-time prime minister, George Papandreou, resigned last November. His father and grandfather had held the same position. He broke the dynasty to save Greece from financial default, it was assumed. Lucas Papademos, a former central banker, took over. Because Papademos was not perceived as a politician, he was supposed to be able to effectively negotiate with the International Monetary Fund and EU neighbors to get a bailout. The plan worked. Private bond holders were forced to take losses to close the transaction. Even Germany, reluctant to help a nation that had ruined itself, put money in, which was absolutely essential to the process.

This weekend, the Greeks will go to the polls. The nation’s largest parties are expected to lose much of their power. Voters have been described as “recession weary” and ready to throw off the weight of austerity. Too many have lost jobs, pay or pensions.

Experts believe that these elections will break up the uneasy coalition between the conservative New Democracy and the Socialists. More new elections will be called quickly. New members of the parliament will replace those who fashioned concessions for the bailout. The austerity plans will be rejected. Taxes will be decreased. Greece will move down the path to a new default. Then it will be pressured out of the European Union.

Greece is already in a very deep recession. Economists say that will worsen even more if the nation loses its trading status as part of the EU and has to go back to its own currency. The Greek voters do not understand that, many observers say. So, they will commit financial suicide in order to return to their old ways of paying little in taxes and enjoying the benefits of a benevolent government. The mistake will push Greece into a recession that could last for years.

The sovereign debt crisis in Europe was supposed to die down with the Greek acceptance of austerity. Bond yields on the sovereign paper of the region’s weaker economies even declined. Then, Portugal and Spain, and perhaps Italy, got into deficit trouble. But Greece was an example of how quickly a nation can be saved from default. The EU and IMF put in place financial facilities that reached a balance of more than $1 trillion. Recently, however, the presence of those funds has not been enough to turn aside worries about Spain, its banks, its real estate collapse and whether its austerity plans will close its deficit or push its economy deeper into recession.

Greece was saved just three months ago. That set a template for what was to become a series of actions by the EU to keep Europe financially stable. But now the Greeks are about to vote. The ready solutions for the region’s debt crisis may have changed within a matter of weeks.

Douglas A. McIntyre