The Endgame: “Greeks feel hopeless”

Wolf Richter

On Thursday, rumors that Greece would have a government goosed the stock markets in Europe. While everybody was out to lunch in Frankfurt, the DAX ran up 110 points, before it settled down a bit. In Athens, the ATHEX, which appears to be on a multi-year trajectory toward zero, jumped 4.2% and the bank index 13%. But on Friday, when it became clear that the rumor was just another rumor, the ATHEX resumed its downward trajectory. And Greeks went to bed without a new government.

During the May 6 election, Greek voters demolished the former top two political parties—the conservative New Democracy and socialist PASOK—that had divvyied up the spoils for decades and that had gotten Greece into its morass. In their outrage, Greeks voted for every alternative in sight, from the radical left to the Neo-Nazis on the right—in the process clobbering those who’d signed the reform memorandum that the Troika had handed them in exchange for hundreds of billions of bailout euros. Neither New Democracy with 18.9% nor PASOK with 13.2% had the votes to govern. And by Friday, all efforts had failed to form a coalition government of whatever kind.

Saturday, President Karolos Papoulias got involved in the horse-trading and spoke of “nuggets of optimism.” And on Sunday, he will invite the leaders of all parties for a last effort to cobble together a coalition government. If that fails, there will be new elections and more opportunities for the will of the people to shift in different directions. And their will is already shifting.

In a poll released on Thursday, the radical left SYRIZA would come out ahead with 23.8% of the vote, up from an already astonishing 16.8% (second place) during the May 6 elections. As the party with the most votes, thanks to an ingenious quirk in Greece’s election law, it would automatically receive an additional 50 of the 300 seats—giving it 121 of the 151 seats required to govern. With that, it will be easier to form a coalition. And it passionately rejects the reform measures imposed by the Troika, though just as passionately, it wants to keep the flood of bailout billions flowing.

A risky assumption because the Troika may shut off the bailout spigot, triggering a massive default and Greece’s return to the drachma. Bundesbank President Jens Weidmann hammered that home on Saturday: “If Athens doesn’t keep its word, that is a democratic decision. But that means the basis for further financial aid falls away.” And if Greece ended up dropping the euro, he said to nip any extortion efforts in the bud, the consequences would be more serious for Greece than for the Eurozone.

Perhaps it was aimed at Evangelos Venizelos, former Finance Minister, president of the PASOK, and master of the bailout game, who’d proclaimed: “There are certain misconceptions that worry me. For instance, the misconception that whatever happens, we are not going to leave the euro.” For the pre-election machinations, read.... “We Are Their Greatest Fear.”

In the poll, only SYRIZA gained. All other parties lost ground. New Democracy drifted down to 17.4%. PASOK, which had won by a landslide in 2009, sank to 10.8%. The Neo-Nazi Golden Dawn that in the past had never even made it into parliament but that had received nearly 7% of the vote last Sunday—sending shockwaves through Europe and causing a bout of soul-searching in Greece—well, it dropped to 4.9% in the poll, perhaps a sign that Greeks are already souring on it.

“No, the Greeks are not Nazis,” wrote blogger Panos Sialakas. And “the vast majority of those who did vote for Golden Dawn are not Nazis either.” Culprit: the horrid economy that is in its fifth year of deep recession: “People feel angry and disappointed with the mainstream parties and their failing policies.... And the worst? Greeks feel hopeless.”

“They’re also angry with the EU, Germany in particular, for the tough austerity program,” he wrote. A powerful chorus in the Greek tragedy. Layoffs, cuts in wages and benefits, deregulation of markets, etc. that would make Greece competitive in a globalized economy, are painful and don’t seem to work. But they “pushed the majority of the Greek population to the limit, and something has to be changed as soon as possible,” wrote Sialakas.

And the Germans are angry at the Greeks for not doing enough to restructure the economy, root out corruption, get a functional tax collection system in place, and live within their means. German tax payers, who are taxed out the wazoo, have committed billions to bailing out Greece. Their patience is running thin, and Greece’s exit from the Eurozone is no longer the dreaded event it once was. Even Finance Minister Wolfgang Schäuble admitted that: “The risks of contagion for other countries of the Eurozone have been reduced, and the Eurozone as a whole has become more resistant.”

The difference between Greece and other countries whose governments spend beyond their means, such as the US or Japan, is that it doesn’t have its own currency that it can print, debase, and devalue with utter abandon every time the credit markets sneeze. And the credit markets have lost confidence that Greece can service its debt without monetization. Hence the debt crisis. But there are solutions....

“The Greeks are still debt slaves, and will be until they tell Brussels to take a hike,” said David Stockman, Director of the Office of Management and Budget under President Reagan. With similarly pungent flourishes, he talked of a “paralyzed” Fed that is in its “final days,” hostage of Wall Street “robots” trading in markets that are “artificially medicated.” For his awesome interview, read.... The Emperor is Naked: David Stockman.