Next week’s big news may be in the East, not the West

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Greece Eurozone
The Greek Parliament face a crucial vote next week. Photo: REUTERS/Yannis Behrakis

While the world looks West next week, don’t lose sight of a gathering drama in the East. On the very day that the US will discover if it has a new or a re-elected President, the Greek Parliament will be faced with a vote that could - finally - decide its fate in the Eurozone.

A ‘deal’ has at last been done between the Greek Government and its European paymasters. I put inverted commas around ‘deal’ because this was not a negotiation of give-and-take, but of take-it-or-leave-it, and Prime Minister Antonis Samaras more or less admitted as much when he told the country “we did everything we could”. No one in Athens is pretending it’s a good deal, just that it’s the only deal on offer.

That’s not good enough for some of the Prime Minister’s coalition partners. The smallest of the three parties, the Democratic Left, has already jumped ship, while the socialists of PASOK are in a state of collective nervous breakdown and may not make it through to next Wednesday’s vote as a single party. Their leader, Evangelos Venizelos, would be out of a job already if there was any viable alternative, but there isn’t. His authority is being further undermined by the fiasco over the ‘Lagarde list’ of wealthy Greeks with Swiss banks accounts, a list the Greek Government had but never investigated. But Venizelos struggles on with little authority, with the left of his party wanting out of the coalition and two old timers having already walked out.

This is the atmosphere in which the Government must cobble together enough votes to pass into law cuts of €13.5bn in Government spending, the price Europe is demanding for the next dollop of bail-out money. 151 votes are needed. The coalition could once count on 176, but the best estimate at the moment is 154 with six more days of possible defections still to come.

If the vote is ‘no’, then it really does look like game-over of Greece as a Euro country. The Government would fall, the Greek state would be unable to pay bills, wages or pensions - when Samaras talks of an ‘economic calamity’ he is not exaggerating. Such a prospect would normally be enough to win the vote through fear alone, but something else is happening in Greece. The economic death spirla is, if anything, accelerating, to the extent that calamity may be coming whatever parliament decides.

Just look at the deterioration in the Greek economy in a single month: at the beginning of October total Greek debt was forcast to rise to 179% of GDP; now the forecast is 189%. Annual growth for next year was forecast at -3.8%, a month later it’s -4.5%. To put it bluntly, this is not normal. This is an economy in a state of collapse, and from which yet more billions are about to be cut in the latest round of austerity.

‘More of the same’ is becoming increasinly untenable, not least because of what it is doing to the levels of Greek debt. Just a few months ago the ‘haircut’ in which private investors, pension funds and the like lost roughly 70% of the money they’d lent to Greece, was supposed to have put Greek debt onto a sustainable footing. Instead the situation is now worse. There is no doubt that Greece will have to write-off much of the rest of its debt, but the money it now owes is not to private institutions but to Governments and the European Central Bank.

Are Governments (for which read Germany) about to go to their taxpayers and tell them that the bill will now have to be paid? That tens, maybe hundreds, of billions of Euros have been lost, money that can no longer be spent on health or welfare programs? Not a chance. Certainly no chance before Angela Merkel faces elections next September. She’s been trying to keep the Greece afloat for two years now, but hard as she has been trying to kick the can, she may be running out of road down which to kick it.

  • Update: The stock market is coming to its own conclusions on a likely Greek meltdown, the Athens stock market down 13% in a single week.
  • Update 2: PASOK leader Evangelos is now being investigated by Parliament about his failure to investigate the so-called ‘Lagarde list’ (see blog: ‘The case of the missing memory stick’ for the full story). At the very moment he needs maximum authority to swing his party behind next week’s vote, his credibility with the public is collapsing.