This weekend the Greeks will go to the polls - and with support for the two main parties (New Democracy - center-right; and PASOK - socialist) at historical lows (and the share of protest and extremist votes at historical highs) - is Greece about to become Belgium. This is likely exactly what the bankers want - a relatively ungoverned nation to pilfer - but as the WSJ reports, against a backdrop of economic crisis, a 'failed' election is expected to usher in such political instability that officials from the country's major parties are planning for another possible election within months. Can they break Belgium's record-breaking run of not having an official government or will the Greeks transform their economy with Greek Fries, Greek Beer, and Greek Chocolate? At the moment, New Democracy is widely expected to win the elections, without however securing the majority in parliament and even in the case of a coalition with PASOK the two parties would not have a majority in parliament. The problem, of course, is that many of the extreme-left and extreme-right minority parties (who are likely to get seats) advocate the renegotiation of agreements with official sector creditors, a rejection of austerity measures, or even leaving the euro altogether. Credit Suisse provides a succinct preview of the Greek elections and three scenarios (bad, badder, baddest) that the post-election EU/IMF-dependent nation faces.
Both main parties have campaigned on the idea that they will renegotiate the Memorandum of Understanding (MoU) with the IMF. In our view, that suggests a degree of liberty they do not have; we think there is little, if any, appetite at the Fund or at the EC to renegotiate the agreement. Rather, the new government’s task will be daunting: €3bn of spending cuts to implement immediately and an additional €12bn to be detailed for 2013-14. Risks have risen around Greece’s ability to implement austerity measures, against a backdrop of increasingly frustrated and impatient official sector lenders.
Credit Suisse: Preview of the Greek elections
Less than a week before the Greek general election (May 6) the outcome remains uncertain. Support for the two main parties – New Democracy and PASOK – is at historical lows (35%-40% against 78% in the 2009 election), with the share of the protest vote and the undecided remaining very high. The latest polls published more than a week ago (due to a restriction for publication of opinion polls two weeks before the elections), suggest that no single party will be in a position to get a majority in parliament, so a coalition government would be likely – not something very common in the Greek political scene.
Greek political system – how does it work?
The Greek parliament has 300 members, elected by a system of “reinforced proportionality”. “Reinforced” because the party that has the most votes is awarded 50 additional seats (irrespective of its share of the votes) and for a party to be represented in parliament, it has to get at least 3% of the votes. “Proportional”, because the remaining 250 seats are allocated proportionally to those parties that meet the 3% threshold. Based on the above, for a party to secure a majority of the seats (151 MPs), without having to rely on a number of parties not meeting the 3% threshold, needs to get at least 40.5% of the votes (i.e. 40.5% of 250 = 101 seats, plus the 50-seat majority premium). In practice, this percentage is lower, since it is unlikely for all parties participating in the election to make it into parliament.
Main political parties
Exhibit 3 provides an overview of the main political parties in Greece and their stance towards euro membership and the EU/IMF programme.
At the moment, New Democracy is widely expected to win the elections, without however securing the majority in parliament, despite the 50-seat premium. If a coalition government was decided upon, the PASOK party would be the most likely candidate, given their common stance on the EU/IMF programme and their coexistence in the latest interim government. However, some opinion polls, suggest that even in such a scenario, the two parties would not be in a position to have a majority in parliament, or have a weak majority at best. Adding to the complexity, the leader of the New Democracy party, Antonis Samaras, is strongly against the idea of a coalition government with PASOK. If an additional member for the coalition was to be looked for, Democratic Alliance – a liberal party in favour of the reforms – would be a likely candidate, however it is unclear whether it will reach the 3% threshold needed to get into parliament. From the remaining parties, the Democratic Left – a pro-European party in favour of some reforms – would be a possible candidate, however its rejection of the EU/IMF programme as it is and its refusal to participate in a New Democracy-PASOK coalition complicates the situation.
The protest vote in this election is high, with up to ten parties getting into parliament – five of which for the first time – and ranging from far-right to far-left. Also the number of undecided at 15-20% remains at high levels and would largely determine the outcome of the election. Political analysts suggest, that as the election date is approaching, the New Democracy and the PASOK party will manage to get back part of their traditional voters and hence their support would be slightly higher than what the latest opinion polls imply.
It is worth noting that no coalition of parties without the participation of New Democracy seems likely, mainly due to the 50-seat premium that the New Democracy party will get and due to the fact that the rest of the votes are split among a collection of parties with strong ideological differences, ranging from far-right to far-left.
Timeline after the elections
The election result will be known late at night on Sunday 6 May. Following that, if no party has the majority of the votes (which is the most likely scenario), the president will ask the leader of the first party in votes to try to form a government (e.g. through a coalition) that enjoys the confidence of the parliament. If this fails or the party withdraws from its right, then the second party is asked to do the same and so on. The process is repeated for the three largest parties and each one has a three-day deadline. If these attempts fail, the president calls the parliamentary leaders of the parties on a last attempt to form a broad coalition government. If that is also unsuccessful an interim government is formed that would lead the country to a new election within a month.
Post-election scenarios Given that it is unlikely that after the elections a single party will have a clear majority, there are several scenarios that could play out. In the list below, we highlight those scenarios that in our view are the most likely ones.
- Scenario 1: New Democracy – PASOK coalition. This is the most likely scenario, in our view. Despite their pre-election announcements – in light of the international pressure and the lack of other alternatives – the two parties are likely to form a coalition government. Based on the poll numbers – if nothing fundamentally changes – this would be a rather weak coalition. It is expected to implement the EU/IMF programme, however frictions between the coalition members are likely. It is also expected to face strong opposition by the anti-bailout parties, especially if it does not have the majority of the votes (lack of strong popular mandate). It would be a rather fragile government, whose stability would be largely determined from the economic outlook and the progress of the reforms, in our view.
- Scenario 2: Broader coalition with the participation of other parties as well. Either due to a lack of parliamentary majority of the above coalition or the need to enlarge the popular base, a smaller party might be asked to join the coalition, e.g. the Democratic Left or the Democratic Alliance. This will allow for a stronger parliamentary majority, but the dynamics are not as straightforward. Taking into consideration the different programme goals of the members of the coalition – especially in the case of the Democratic Left – the government might not be flexible enough to implement the agreed reforms and a lot of the measures might have to be watered down, in order to be passed in parliament.
- Scenario 3: New elections. If there is unwillingness from the New Democracy party to form a coalition government or attempts to do so fail, then new elections will follow suit. This outcome would be disruptive, at least in the short term, and questions regarding the implementation of the EU/IMF programme and Greece’s existence in the euro will emerge.
In the new election it is possible that, in fear of an ungoverned country, part of the protest vote will be shifted towards the main parties, resulting in a stronger government/coalition, that would be in a position to implement its mandate. However, if this is not the case, the risk of a disruptive development will materially increase.
As UBS notes, "We believe that the Greek situation is far from resolved and that a further restructuring of the debt is quite likely."
What if Greece does not deliver? We think that there is a clear risk that the IMF simply refuses to make the next payment. In that case it is probable that the EU would follow suit. However, it is unlikely in our view that payments would stop altogether; rather, they might be postponed until Greece fulfills its obligations