The SYRIZA Spanner in the Works: The Greek Legislative Election (May 6 2012)

May 14, 2012

Newsflash. Economically, Greece is in pretty poor shape. Previous PIIGSty articles have assessed and analysed the Greek situation (nearly to death…) including the two EU-IMF bailout packages (see here and here and here)

So why is Greece back in the news?  Turns out that politically, Greece – the birthplace of modern democracy –  is in pretty poor shape too. On 6 May, the Greeks went to the polls to elect a new parliament. Despite huge political pressure (and compelling scenes of social upheaval and public anger), the governing unity coalition of the two historically biggest parties continued to implement the severe austerity measures necessary to correct the structural weakness of the Greek economy. For a handy chart on the evolution of the Greek economy, see here

Predicted PASOK Disaster

Of course, PASOK and ND were expected to receive a thumping but some other results stunned Europe and pollsters alike. As predicted, the remaining two parties in the unity coalition shouldered the blame from the Greek people as PASOK (centre-left) and New Democracy (centre-right) suffered massive vote losses of 31% and 15% respectively. In the 300 seat Greek parliament, PASOK under new leader and former Finance Minister Evangelos Venizelos lost 119 of its 160 previous seat total  (to 41 MPs).  However, in terms of their overall vote share – it was their worst result since their founding, garnering just 32% between them, down from 80%+ (The ND gained seats despite this sharp decline as the overall vote winner recieves a bonus of +50 seats/MPs under the Greek system).

The result meant the incumbent coalition which oversaw the imposition of the EU-IMF austerity programmes, was reduced to 149 seats, an agonising 2 MPs short of a governing majority.

The Surprising Winners

The surprising aspect was the severe fracturing of the vote to new parties and the success of the fascist extremist ‘Golden Dawn’ party which won 21 seats. With the implosion of PASOK, a number of young or newly founded anti-austerity parties from across the political spectrum did well. The conservative ‘Independent Greeks’ lead by former rebel New Democracy MP Panos Kammenos won 33 seats while the social democratic ‘Democratic Left (DL)’ gained 19 seats.  Both have refused to take part or support a new ‘austerity’ PASOK-ND unity coalition but there is wiggle room as signals abound that a small scale ‘renegotiation’ of the austerity programme or some sort of accommodation may be possible, in exchange for a stable unity coalition deal that would last at least 2 years until the European Elections in 2014.  If a coalition deal is hammered out, through sheer number of MPs, ND leader Antonis Samaras would become PM replacing technocrat PM Lucas Papademos although all three ‘main’ party leaders (PASOK, ND and SYRIZA) will be given the chance to try form a government. Under the Greek constitution, the task to broker a deal falls to Greek President Karolos Papoulias

SYRIZA Scores Second

For now, Greece is divided politically along the ‘austerity’ fault line rather than ideologically. If no government can be agreed by May 17, its back to the polls. To get to a workable majority, PASOK and ND must steer through a political minefield. The pivotal spanner in the works is proving to be the success of the ‘Coalition of the Radical Left’ SYRIZA party which ended the ‘seesaw’ duopoly of Greek political power by ousting PASOK to become the second biggest party in parliament with an unprecedented 12% gain in vote share and nearly 40 seat gain to 52 MPs. Had SYRIZA received only 160,000 more votes and beaten ND to first place, they would have received the +50 seat bonus and ended up with over 100 MPs. As a result, its leader Alexis Tsipras is now in a very powerful position. With his eye on a rematch, Tsipras is making a gamble and dragging his feet in coalition talks – most likely a political calculation and trying to make the delicate process as difficult as possible. If another election is required within a matter of weeks (still the most likely option), polls suggest SYRIZA is poised to mop up other anti-austerity protest votes from the various new minor parties, possibly pushing them into first place in votes and making SYRIZA the biggest party in parliament. However,  Tsipras’ behaviour since the election has angered many in the smaller parties which he would need to form an anti-austerity government. Basking in the media spotlight, an increasingly confident Tsipras has routinely lambasted both PASOK and ND, accusing them of lies, criminality, blackmail and barbarism – signalling he is extremely unlikely to prop them up to run Greece for even a truncated 2 year term.

Back to the Polls?

Democratic Left (DL), SYRIZA and the Independent Greeks all reject the terms of the bailout agreements which PASOK-ND endorse, in varying degrees – with DL the most malleable with less vitriolic demands for a ‘phased renegotiation’. Of the parties, it is therefore most likely key to agreeing a last minute deal to stave off a political crisis – but significant hurdles remain. All parties agree (emphasized by DL) that the success of SYRIZA means their exclusion from any coalition would immediately undermine its legitimacy and ability to govern. Another election might just see SYRIZA pip ND to first place and give them a fair shot at cobbling together and leading an unwieldy ‘anti-austerity’ coalition with Tsipras as PM.

In the meantime (par for the course) talk about Greece being unceremoniously ejected from the eurozone continues despite public opinion remaining strongly supportive of maintaining the status quo.

With no agreement, the date most likely for an election is June 17 – which, if it happens, could prove a defining moment in the history of the eurozone

*UPDATE*  Talks have collapsed (15 May). Mid-June elections are now virtually certain.


The Irish Fiscal Stability Treaty – Why the Fuss?

May 10, 2012

The Irish AG Sets the Ball Rolling…

When the Irish Attorney General Máire Whelan, decided in late February to throw the decision over the ratification of the European Fiscal Treaty to the Irish  people in a referendum (since scheduled for May 31st), the euro plunged on world markets and has remained somewhat perilous ever since.  It has become increasingly clear that Europe must be dragged kicking and screaming into making the right decisions for its people, with political considerations eclipsing the need for some proper, sound economic logic. PIIGSty has long endorsed the idea of some degree of European control over eurozone fiscal matters because, put simply, that is what is supposed to glue together every monetary union. Why? Because if you want to play the game, you must adhere to the rules. The rules of the euro are very clear – and all euro-users (including Germany and France) are all culprits of massaging the rules (Stability and Growth Pact – SGP) to suit themselves. Now, its back to basics.

The Historical Background

A recommended PIIGSty study on the euro is provided here. In a nutshell, when the euro began circulating in 2002, the European economy was so strong that any idea of caution was viewed as unnecessary negativity. As economists began to query the honest reporting of the macroeconomic situation in Greece by the Greek finance ministry, the party just continued. Like the drunken older uncle at the wedding, the guests politely ignored him. A bit of an embarrassment – sure! – but hes family now and hes not really having an impact on the grand banquet itself.  When the German Bundesbank in 2005 warned that relaxing strict entry rules to the euro (Maastricht Criteria) and fiddling around with the maintenance rules of the wider euro-union (SGP) to suit those countries who happened to breach them (i.e. France and Germany, at that time – among others) – another huge red light was ignored. To use a separate railway analogy, the eurozone train had been gathering speed down a steep slope, and as the terrain leveled off, the driver worked to release the breaks to maintain the high speed the passengers demanded.

And so we come to the current crisis. PIIGSty has a number of articles on how and why we got here. But what about how Europe plans to avoid a repeat experience. The answer, or part of the answer, is the EU’s Fiscal ‘Stability’ Treaty or Fiscal Compact.

The Point of the Treaty?

The merits behind the Treaty, from the EU’s standpoint, are logical and ultimately imperative – as has frequently been discussed here on  FYI here it is

Put simply – centralisation of fiscal control of eurozone national budgets is seen as necessary for both economic and political reasons. Economic – because centralised control means insisting on common standards and avoiding some states freeriding on the backs of fiscally responsible countries (i.e. Germany). Political – because it removes (or at least reduces significantly) the temptation for political leaders to throw taxpayers money around to gain political popularity and advantage. Reasoning is straightforward enough. Considering the complete mess the PIIGS have made of their own finances (some excessively more than others, of course), the Franco-German alliance of Sarkozy and Merkel (‘Merkozy’) agreed at Deauville in 2010 that to protect EMU (i.e. the euro) means achieving 2 particular means:

  1. An agreed crisis management strategy in the eurozone replacing the ‘headless chicken’ approach currently in operation thanks to ambiguous ‘bending’ of the Lisbon Treaty
  2. Formal powers to suspend an EU member state in the Council of Ministers in the event of violation of ‘basic principles’ of EMU

One particular offspring of the Merkozy Deauville love-in was the controversial EFSF (see here). So, how to enhance coordinate fiscal eurozone fiscal policy?

Simple. A souped up Stability and Growth Pact (SGP) with teeth – actual formal concrete power, forcing euro-users to return to 3% budget deficits and 60% Debt : GDP ceilings  –  the same end targets of the current austerity programmes across the PIIGS  along with a collective power to penalise those who don’t respect the rules.

PIIGSty Presents: From Attlee to Thatcher – The Development of British Attitudes toward the European Project (1945-1979)

February 21, 2012

One of the less understood mysteries in European politics is the issue of British antipathy toward the entire European project since the Schuman Declaration in 1950.  The story is more a British one than a European one about anti-Franco-German coal and steel cooperation. As such, it begins in 1945 in a war weary nation which had just unceremoniously ejected the victorious war hero Winston Churchill as Prime Minister to lay the groundwork for the modern British welfare state.

Heres the PDF PIIGSty Publication #3 – From Attlee to Thatcher: Evolution of UK Attitudes toward Europe

WANTED: A European Alexander Hamilton

February 18, 2012

Now and again, sifting through those puffed up self aggrandizing and overly complicated articles (aka messages of doom/rants) written by ‘celebrated’ economists, you find a few golden nuggets that are both enjoyable to read and useful. Robert E Wright (Bloomberg) recently penned such a shining example – ‘Why the Early US Didn’t Go the Way of the Euro: Echoes.’

Obviously its quite timely, although equally obviously, its subject matter is anything but obvious (if you follow me). In the original PIIGSty publication on the euro, I made a few comparisons between the US and the European ‘federation’ experience – mainly that, the Americans nailed down their political unity quite early, allowing a standardised economic federation to follow quite early in the genesis of their union wherein most subsequent US states (ignoring the Civil War, of course) have done so with their feet firmly planted on this solid foundation.  In effect, political union predated full, accepted economic federalism. For Europe, it’s far more complicated although not all that different (at least at one point in history)– except for the fact that the EU is trying to achieve a similar outcome by working in reverse.

Wright adds historical substance to this argument. Below are his findings:

Similarities between the 18th Century US and today’s EU

  • Citizens saw themselves as state citizens first and ‘federal’ citizens second
  • Flow of human capital was open but movements limited due to cultural (ethnic and linguistic) differences
  • Flow of financial capital across state lines limited (local and state banks)

What did the US do?

  • Economic statesmanship was provided by Treasury Secretary Alexander Hamilton (late 1790s). He established the gold/silver standard dollar, federal tax system and the US Federal Reserve (Central Bank).
  • ‘Assumption of state debt’ was proposed which allowed the US federal government to issue debt (bonds) as a federal whole which superseded state bonds, providing a mechanism for the feds to control the whole bond system and also, alleviate state debt (which indebted nations could not resist). This effectively mean that the federal Treasury would pay all state debts, financed by a 4% interest US gov bond. This action bound bondholders, no longer to the states but to the federal US as whole.
  • The action also bound states to the federal government. In exchange, states lost their control over money (couldn’t set interest rates, exchange rates) and their control over their fiscal policy was diluted.
  • The US government refused to ‘pay’ state debts (i.e. bailout states), enshrined in Constitution after Civil War (Post-1865)  in 14th Amendment

Adding meat to this argument is another recent  article (there have been many in recent months) by C. Randall Henning and Martin Kessler.

Read the rest of this entry »

PIIGSty Presents: Your PIIGSty Guide to Econ101

February 7, 2012

In celebration of 10,000 page views, PIIGSty proudly presents our very own comprehensive reference guide to basic economics – or – as our transatlantic cousins might put it, ‘Econ101’

This guide represents the culmination of our very hard work over many months in response to many reader requests and we are delighted to offer our readers this guide for FREE for the very first time. The component chapters have already been uploaded in the Econ101 section (feel free to pilfer them at your leisure) but this is the final, finished, polished version, ready to sit pride of place on your coffee table. If you’d like a fully published version, contact us for a price (yeah,  thats not free…)

Your PIIGSty Guide to Econ101 eBook


Many thanks to all our PIIGSty readers. Comments/criticism welcome at

Economics 101 (#35) History of Economic Thought

February 7, 2012

Theres an awful lot of revisionism going on lately as governments across the world attempt to battle the economic crisis with competing left and right wing approaches. Conservatives (generally) favour austerity; slashing public spending to get your fiscal house in order (balancing the books) while lowering taxation to promote business growth, entrepreneurship and consumer spending. Liberals (generally) favour government spending or stimuli packages while maintaining (or increasing) tax levels to bring in additional revenue to balance the books while squeezing efficiency out of the current public service, without cutting too deeply (or ‘freezing’ employment). Of course, many countries have adopted a bit of both.

This isn’t a huge surprise. Historically, both doctrines and many halfway house hybrids have had their day, in various forms –  from mercantilism and the classical school to Keynesianism and monetarism, from the 16th century to the 21st. And yes, history tends to repeat itself. Turns out that economics isn’t as predictable  and tamable as some would like to think.

We left the best chapter till last. PIIGSty highly recommends reading it regularly…you’ll definitely need this one (and its a handy conversation starter, at the very least).

Heres the PDF PIIGSty Econ 101 #35 History of Eco Thought

Economics 101 (#34) Economics of Population

February 7, 2012

Studying the population is known as demography and, as you probably have guessed, the population/citizens are broken down into categories, known as demographics. This chapter provides a brief overview of the study of population and its component parts, including the all important effects of emigration.

Heres the PDF PIIGSty Econ 101 #34 Economics of Population

Economics 101 (#33) Economic Development and Growth

February 7, 2012

Right now, most Western economies are at a pivotal point in their histories. You read stories of the BRICs (Brazil, Russia, India, China) and South Africa, as well as several Asian and Latin American ‘tiger’ economies. Economies are all different and grow at different rates depending on their level of development. Like for a child, growth is good but its not continuous – you can grow a lot when you’re a teen, and then stop at 16.

Development is different as it involves a process of maturity and lasting change. For economies, this means society must be significantly changing and the economy is absorbing the growth effectively. Rostow devised an economic model – the ‘5 stages of economic growth‘ which illustrates well the changing structures economies/societies go through.

Heres the PDF PIIGSty Econ 101 #33 Eco Development and Growth

To be more specific…

But how we know if a country is ‘least developed’ and how can government encourage economic development? Simple really…

Economics 101 (#32) The International Economic System

February 7, 2012

After WW2, a number of international institutions were formed to steamline the flow of trade across borders. It was feared that without agreed and structured intergovernmental bodies independent of political tinkering, European countries would raise their protectionist barriers (tariffs) and seek to keep foreign competition from hurting their own industry (and so, their own people). This marked the formal creation of an international economic system.

Free and unhindered trade was (and remains to be) seen as a vital component for recovering degraded economies. PIIGSty gives you a summary of the 3 main institutions, all of which remain in operation today.

Heres the PDF  PIIGSty Econ 101 #32 International Eco Sys