Greek political stalemate continues: Pasok tries to get agreement on government that backs austerity but seeks to soften its impact

The head of Pasok has been handed the mandate to hammer out an agreement to form a coalition government from itself with 13.4 % of the vote, New Democracy with 19 % of the vote and the social democratic party with 6 % of the vote. Together the three parties would have a narrow majority of the seats because New Democracy finished first and has an additional 50 seats on top of its proportionally obtained 58. This coalition would still be shaky because there are probably a number of parliamentary members in all three parties that would be nervous to be identified as politicians who sustained extreme austerity even when the majority of the electorate had rejected it. The Germans and the ECB and the Brussels technocrats would strongly support it but that might discredit it in the eyes of many citizens, unless they obtained some concessions to soften the pace and impact of austerity, something which so far Chancellor Merkel has adamantly refused to agree to.

There is a promising statement by an influential advisor to the German government on the need for greater flexibility in the demands made upon countries like Greece facing debt repayment crises.  This has been reported in the Athens English language press. See this excerpt below.

3.14pm Europe should allow highly indebted countries more flexibility in bringing their finances back to sustainability instead of forcing them to save themselves to death, German economic adviser Peter Bofinger was quoted as saying on Friday. Bofinger, one of the five so-called “wise men” who formally advise the German government on the economy, also said that the European Central Bank’s mandate should be broadened to include financial stability from the current single-minded focus on stable inflation. “We operate much too procyclically, the problem countries are saving themselves to death,” Bofinger told Austrian newspaper Der Standard in an interview. “We have to stop that, even if deficits will be higher in the short-term.” Bofinger advocated changes to the Greek aid programme, including for example reduction in youth unemployment in targets. He also warned of a chain reaction if bailout payments to Greece were stopped.
 The ECB should also drop its unidimensional focus on price stability, Bofinger said, proposing that its mandate be changed to include also financial stability, as the current approach has not worked.
 “The ECB has run through the world wearing blinders,” Bofinger told the daily, adding that the ECB should guarantee that yields on government bonds do not rise above a certain level.
This is a very welcome statement and Greek party officials should react to it favourably.  Bofinger, an economist at Universität Würzburg leans in a Keynesian direction and he could provide excellent advice.

On the other hand, some polls taken since the election show that the austerity rejectionist party  Syriza, the  Coalition of the Left ,would gain aditional votes and seats and would finish first in a second round election potentially ending up with 128 seats in the new Parliament. Both Pasok led by Evangelos Veizelos and New Democracy led by Antonis Samaras would lose further votes and seats. So there is a big incentive for these two parties to strike a deal with the sixth party, Dimar. We shall see if the deal occurs and how the parties will present it to the Greek public, if in fact a deal is struck. It may work in the short term but I wonder how long it would take for it to unravel if unrelenting austerity is continued.

The poll conducted by Marc and reported in the Athens Press was conducted two days after the election and has the following result. Syriza 27.7 %  128 seats; New Democracy  20.3 %  57 seats; Pasok  12.6% 36 seats; Independent Greeks 10.2 % 29 seats; KKE 7 % 20 seats; Golden Dawn 5.7 % 16 seats; Democratic Left 4.9 %  14 seats.

The latest news on Friday late afternoon suggests that the small social democratic party Dimar is refusing to enter a coalition without the participation of Syriza who was elected on the basis of its opposition to austerity. A new election is looking more likely unless all four of these parties, Pasok, New Democracy, Dimar and Syriza compromise somewhat. There is another alternative but it would require some compromise on the part of the European leadership.(See Peter Bofinger’s statement above) This would involve some softening and some temporary suspension of the draconian austerity being imposed foolishly on Greece. With a better set of rules and more time both political and economic recovery would become possible.There are probably at least five political parties in Greece who would seek to participate in a government that had been offered these better terms. As of Friday evening the talks had reached an impasse which the President will seek to overcome tomorrow.

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About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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