Bloomberg News

Greeks Reveal Euro or No in First Election Since Downturn

May 02, 2012

The Greek economy has shrunk almost 14 percent since the last election. Photographer: Simon Dawson/Bloomberg

The Greek economy has shrunk almost 14 percent since the last election. Photographer: Simon Dawson/Bloomberg

Alexandra Paschia’s toddler runs among the shoes marked down to 5 euros ($6.63) from 50 euros in their family-run store in Athens. The demise of Greece’s economy has spanned the life of the 2 1/2-year-old girl, and ensures there are no customers to bump into a week before elections.

“This crisis has meant a 180-degree turn, a somersault in everyone’s lives, old, young, rich, poor,” says Paschia, 35, who will vote for the anti-immigrant Golden Dawn party instead of the two main parties of Pasok or New Democracy on May 6. “We need new, different voices in parliament.”

For the first time since their country became the byword for the European debt crisis, Greeks will have their say at the ballot box rather than in street protests about the economic pain they are enduring for a third successive year in the battle to retain membership of the euro.

Faced with the prospect of more budget cuts to keep international funds flowing, many voters are backing small anti- bailout parties that promise an end to austerity measures. While polls show most people don’t want a return to the drachma, opponents warn that could tilt the balance in favor of rejecting the bailout terms and threaten Greece’s membership in the euro.

“At a time of crisis, populist parties, extreme parties find it easier to inspire people,” said Notis Mitarakis, 39, a former analyst with Fidelity International who is now standing for New Democracy. “It’s difficult for me to inspire you. What can I tell you, that tomorrow morning you’ll be rich?”

Crunch Time

The Greek economy has shrunk more than 13 percent over the past three years and the Athens stock market has lost more than two thirds of its value since the last election in October 2009, when former Prime Minister George Papandreou’s Pasok unseated New Democracy only to find the country’s debt had been understated. The parties have alternated power since the end of the military junta in 1974.

With voters balking at the burden of two bailout packages since 2010, the next government will have to persuade international creditors to keep aid flowing.

“No less than the future of Greece’s membership in the euro and the EU is at stake in the Greek election,” Joachim Fels, the chief economist at Morgan Stanley in London, wrote in a note on April 29. “If there is no stable majority for a continuation of the current policy path in the new parliament, Greece might abandon the program, the European partners might withhold further aid payments, and Greece might decide to leave the euro to monetise her debts and deficits.”

Splintered Parliament?

Polls show that as many as 10 parties have a chance at entering parliament, underscoring how weary Greeks have become with higher taxes, salary cuts and the politicians responsible for implementing them.

Unemployment has reached one in five people. As many as 1,000 small businesses like Paschia’s will close per week in the first half of this year, the European Commission estimates.

While parties are split over the economic measures designed to keep Greece in the euro, most politicians and voters alike want to keep the currency

Just 13 percent of voters want to walk out of the 17-nation bloc, according to an MRB Hellas poll of 1,007 people on April 18 and April 19. Sixty-seven percent said that Greece can stay in the euro while applying measures different to those agreed with the International Monetary Fund and the European Union. Just 13 percent said Greece has no option but to stick to its current course.

Georgia Bellou plans to vote for Independent Greeks, a group set by Panos Kammenos, a 46-year-old former New Democracy lawmaker who opposed the round of austerity that secured the second rescue earlier this year. Kammenos said he’d rather quit the party than be “spat on in the street.”

Survival

“A vote against Pasok and New Democracy isn’t a vote against austerity measures per se,” said Bellou, 38, an employee at an events organizing company. “It’s a vote against not being able to survive anymore.”

Greece goes to the polls two years after the government negotiated its first, 110 billion-euro package, from the EU and the IMF. That was followed by a second, 130 billion-euro package earlier this year, tied to the biggest debt restructuring ever.

Final opinion polls on April 20 showed New Democracy and Pasok with about 45 percent of the total vote following the interim government of Prime Minister Lucas Papademos that was backed by both parties. Anti-bailout parties on both the left and right are running at nearly the same support.

The Undecided

The undecided vote is around 20 percent. That could buoy the two main parties, giving them a solid majority in the 300- seat parliament and providing the pro-bailout bloc with political firepower to silence critics, said Spyros Economides, a senior lecturer at the London School of Economics.

“If they together have 151 votes, basically they can do what they like but it will not be very popular,” he said. “If they have over 50 percent of the popular vote, whether that’s 160 seats or 180 seats, that will give them a great degree of popular legitimacy because democracy has shown its hand.”

The parties are relying on people like Christos Romios, 63, who has voted Pasok, the Greek acronym for the Pan-Hellenic Socialist Party, all his life. He is now agonizing over whether he should again and will decide at the last minute.

“I’m too depressed to talk about the elections,” Romios said as he smoked a cigarette outside his jewelry store in a cobblestoned alleyway in Athens. “We can’t make ends meet. They should all be shot. But I am worried that the country will be ungovernable now with all these small parties.”

Voting History

Fiscal prudence has never played well at the ballot box in Greece. Last time around, as the global financial crisis began to press on Greece, then-Prime Minister Kostas Karamanlis’s plea to voters to give him a mandate to freeze public-sector wages and hiring, cut spending and curb tax evasion fell on deaf ears. He was defeated by Papandreou’s promise of more spending.

The Greek economy was set to shrink that year for the first time since 1993, ending its run as one of the EU’s best performers, as the global recession hurt shipping and tourism.

The crisis erupted after successive governments struggled to execute pension and labor market reforms long demanded by the EU as Pasok and New Democracy vied for political clout among unions and other groups.

“This is the first election that’s going to give us an idea as to whether the Greek electorate has actually changed as a result of this crisis,” said Economides.

Time Pressure

Polls suggest New Democracy will place first, though without enough support to rule outright, leaving leader Antonis Samaras with the option of teaming with Pasok, now led by former Finance Minister Evangelos Venizelos, if he is to govern.

Failure to strike a deal and back the next government will likely lead to another election within months, the first time since 1989 that two votes would have been held in the same year.

There will be no grace period for any new government. International lenders expect to hear in June how Greece will detail 11.6 billion euros of savings for 2013 and 2014.

Samaras, 60, has appealed for a clear mandate to allow him to renegotiate parts of the terms for the EU and IMF funding. He has promised tax-cuts for businesses to boost growth and to slash waste in the public sector. He says his party has identified 18.5 billion euros of alternative cuts to replace some of those promised to the EU and IMF.

There is little, if any, appetite at the EU or IMF to renegotiate the agreement, Stephane Deo, the chief European economist for UBS Securities in London, said in a note to investors on May 2. He said there would be a “clear risk” that the IMF would refuse to make the next payment, followed by the EU. Greece “would simply run out of cash,” he said.

Easy Words

“Words are easy; practice is difficult,” Venizelos, 55, who negotiated the international rescue granted last month, said on April 28. “Negotiations are even harder. Equivalent measures of 18.5 billion euros can’t be found.”

Both Greek leaders and the EU and IMF agree that there is no more room in the country for across-the-board wage cuts and higher taxes. The focus now will include cutting the state workforce, which has been promised and not done. More than 770,000 people draw a salary as civil servants in a nation with a total workforce is 3.9 million people.

“Europe and the IMF need to deliver a message to public opinion, clearly, that you must deliver the structural changes, become a more normal country where people pay tax, and the public sector works, more or less,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. “These are the priorities. At this point everything is too damaged to make it work otherwise.”

Exodus of Euros

Reviving the banks and getting them to finance business activity again, is also on the to-do list. Nearly 70 billion euros in deposits have fled Greek banks since the crisis began as a question-mark hovers over the country’s future in the euro, Venizelos said on April 28.

An exit from the currency might lead to capital flight from other challenged euro members and could unravel the single currency altogether, said Fels at Morgan Stanley. The risk of a bank run elsewhere in Europe would be substantial, UBS’s Deo wrote, arguing that euro exit is not an option.

Meanwhile Greece’s anti-bailout dynamic is scuttling generations of long-held loyalty. Nikolaos Anastasopoulos voted for the Communist Party of Greece, as did his father, who was jailed for his beliefs. He’s now ready to make a break with his past, blaming the state for corruption, illegal immigrants for crime and the bailout terms for emptying his store of customers.

Punishing Parties

He also slams the Communist Party for not standing up enough for workers during the austerity drive.

“I will punish them,” Anastasopoulos, 30, said in his central Athens antique shop, surrounded by embroidery from the 1920s, ashtrays from the 1940s and ceramic jugs from the 1950s. “We need leaders who are not traitors, who love this country, not those appointed by the IMF.”

Paschia’s shoe store used to employ a dozen people and now she runs it with her brother. Both of them were born in Germany to Greek parents and her father wanted to return to Greece, bringing the family 31 years ago. Now heading back to Germany is an option, though not one they favor.

“We don’t want to go,” Paschia said as her daughter darted up and down the store. “We are proud to be Greeks but ashamed to be living here”

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net


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