Posts Tagged ‘Drachma’

Can He Sell Austerity?

In Economics, Financials, Politics on November 11, 2011 at 21:27

A five-day drama to form the new ‘coalition government’ has come to an end. Lucas Papademos will be Greece’s 11th PM and along with his new cabinet, will lead the country through a transitional phase, aiming at securing the 6th and 7th tranches from the bailout funds as well as locking in the new rescue package essential for the country to remain in the Eurozone. The big question however is can this new government deliver what the previous one couldn’t, and can Lucas Papademos succeed where his predecesor failed?

First, let’s get the facts straight. Mr. Papandreou stepped down as the PM after fierce criticism from the general public and threats of defections from his own party. The austerity measures and policies needed to be implemented as a condition by Greece’s creditors are so tough and anti-popular that it is impossible for one party to bear all the burden. After Papandreou’s tactical move to call for a referendum, the two main political parties along with another one from the right wing, joined forces to form a coalition government that would help calm the nation down, and pass all these measures at the minimum possible cost.

The choice of Mr. Papademos as Greece’s PM is something that fills me with pleasure and great expectations. In my opinion, out of the possible candidates that were up for the position, he was the most respectable, competent, and of ‘common approval’ person. His experience is vast, his knowledge on Economics and sovereign crises immense, and most importantly, he knows the European ‘waters’ better than anyone in Greece, having served ten years in the ECB from the post of the Vice President. Having said that, Papademos can definely improve communication with our creditors and the EU in general, and may also open a new discussion on the prospect of renegotiating some of the new package’s terms. In addition, this ‘coalition government’ translates into less appetite for micro-political games and more efforts to deliver constructive results. New Democracy’s involvement, the main opposition party, gives them no more excuses to point the finger at anyone with respect to upcoming political decisions. Less talking and criticism, and more of working altogether for the common good of this country is what oughts to be done.

Nevertheless, there are several features in this new government that make me skeptical over its capacity to deliver. First, is the matter of excessive expectations. Somehow, Greek people have raised the bar too high and think that this is the solution to the crisis. Not quite. Thinks are still on the edge, and we have lost precious time the past five days trying to form this new government. The draconian measures still need to be voted and implemented as quickly as possible. Secondly, Mr. Papademos is a technocrat, with no political experience, someone who hasn’t been tested on similar country-like situations. However, this can work either way, as less politics and more expertise is what this country may actually need. Thirdly, the proper functioning of a government with lawmakers from different parties working together is quite a challenge. Frictions can easily be engendered amongst people with different political motives and ideologies. The last and most important obstacle for this governemnt is that it has an expiry date. Its duration is said to be 3-4 months with national elections on its immediate horizon. Its main aim is to secure the 6th and 7th tranches from the Troika and the adoption of the new rescue package. This is an unrealistically short window for Mr. Papademos to work properly, and it unavoidably builds a pre-election period climate polarizing the public once again, canceling out the essence of this new government of national unity.

‘Restrained optimism’ can best describe my view on this new administration. Setting political interests aside for once and promoting the overall good for Greece will be a big challenge for our political stage. Lucas Papademos is unambiguously someone who knows the right steps to follow but faces a number of obstacles in his track. Selling austerity measures wasn’t easy for Papandreou and won’t be easy for Papademos. The difference now, though, is that politicians have played their part. The ball is in the hands of the Greek people to decide whether they want to accept the measures and stay in the Eurozone, or test their faith with the Drachma.


by DG