Cause and Effect in European Politics and Law

Europe is Holding Breath Anticipating the Greek Choice

Ralitsa Kovacheva, June 16, 2012

On Sunday, the Greeks have to vote again after the first election on 6 May left the country without a new government, and Europe without a clarity where to go. Since 6 May the EU has frozen all the important decisions until the results are known from the second Greek elections, an European Commission`s official told euinside. While opinion polls give narrow lead to the conservative party New Democracy, no one in Brussels dares to predict the outcome of the vote.

But there are more and more indications that the EU is ready to make concessions in terms of the rescue programme, but only in case that the right win the election. This was also confirmed by an European official speaking to the The Financial Times. He said the prepared package of incentives included further reductions in interest rates and extended repayment periods for bailout loans. France and Germany, meanwhile, pledged European support for economic growth in Greece.

Since the opinion pools give a very small lead to New Democracy over SYRIZA, it is also not excluded concessions to be made in case of the left coalition wins the elections. The latest opinion pools from 31 May (polls are banned in two weeks before the elections) showed that New Democracy would not get an absolute majority, winning a total of 120 seats, including 50 seats that the leading party recives according to the Greek law. SYRIZA is predicted to be the second political force with 70 seats, and the socialist- the third with 35.

In any case, however, Greece must continue to implement the economic programme, although it would receive some "sweeteners" from the EU. This is the condition the country to remain in the euro area, although the leader of SYRIZA Alexis Tsipras repeatedly said that if he won the election he would require renegotiation of the loan conditions or reject it unilaterally. The European leaders, however, are adamant that there is no way for Greece to remain in the euro area, if it repeals the agreement with the EU and the IMF.

The European Central Bank is preparing for a crisis scenario where the outcome of the Greek elections can trigger negative market reactions. Its President Mario Draghi said that the ECB was ready to pump liquidity into the banking system, if the outcome of Greek elections caused market turbulence. The Central banks in Britain, Canada, Japan, China and India are ready to respond as well.

The question now is whom the Greeks will believe- Alexis Tsipras, who said that creditors would not abandon Greece because otherwise the euro would collapse the very next day, or the European Union, which clearly showed that it can show solidarity, but would not allow to be blackmailed. The eurozone would suffer heavily the consequences of a Greek exit, especially given that Spain has already announced it would seek a bailout for its banks, and the Italian borrowing cost is dangerously rising. However, though Greece is a heavy loss, the euro could get over it. But cutting Spain`s and Italy`s market access would mean the beginning of the end for the euro area.

The Greeks, however, though tempted by the slogans of Tsipras, are strongly willing to keep the euro. Apparently they are fully aware that returning to the drachma will leave them completely alone on the arbitrariness of the crisis. Namely on this sanity we should rely on Sundays, so the Greek political forces to have a chance to form a viable government in the coming days. The latter option is to create a new expert government like that of Lucas Papademos which has ruled the country in recent months. But it would hardly enjoys the citizens` trust needed to carry out difficult reforms envisaged in the rescue programme. And that would mean new political turmoil in Greece and growing market mistrust to the euro area.