Greek PM wins trust vote, pledges transition

erek Gatopoulos, Elena Becatoros

Last Updated : 05 Nov 2011

ATHENS: Greek Prime Minister George Papandreou has survived a confidence vote, calming a vicious revolt in his Socialist party with an emotional pledge to step aside if necessary and seek a cross-party government to safeguard a new European debt agreement.

Papandreou won the critical parliamentary confidence motion 153-145 early Saturday after a week of drama in Athens that horrified Greece’s European partners, spooked global markets and overshadowed the Group of 20 summit in the French resort of Cannes.The threat of a Greek default or exit from the common euro currency has worsened the continent’s debt crisis, which is already struggling under bailouts for Greece, Ireland and Portugal.Finance Minister Evangelos Venizelos, who warned that the debt-ridden country still faced “mortal danger,” said the new government would last four months, until the end of February.But conservative opposition leader Antonis Samaras demanded immediate elections. He did not say whether he would join coalition talks, due to be formally launched later Saturday when Papandreou meets the country’s president.”The masks have fallen,” Samaras said. “Mr. Papandreou has rejected our proposals in their entirety. The responsibility he bears is huge. The only solution is elections.”Midway through its four-year term, Papandreou’s government came under threat after his disastrous bid this week to hold a referendum on a major new European debt agreement. The idea was swiftly scrapped Thursday after an angry response from markets and European leaders who said any popular vote in Greece would determine whether the country would keep its cherished euro membership.They also vowed to withhold a critical €8 billion installment of loans from an existing bailout deal that Greece needs urgently to stave off an imminent and catastrophic default.Papandreou’s shock referendum gamble, and the hostile international response, horrified many of his own party stalwarts. It prompted an open rebellion with senior socialists saying they would only back the confidence vote if he pledged to seek a cross-party coalition with a mandate to secure the new debt deal and the disbursement next bailout loan installment.Struggling to face down the revolt, Papandreou insisted his only priority was to save the country. He insisted he was not concerned with retaining the premiership, but warned that elections now would have been “catastrophic,” jeopardizing Greece’s continued bailout funding, the new debt deal and the country’s euro membership.He sought the vote of confidence “to safeguard a steady course for the country — with no power vacuum, without being dragged to election,” he said.”We must proceed in an organized way. And regardless of developments, the country must be governed tomorrow without turbulence.”Several thousands supporters of Greece’s Communist Party protested outside parliament just ahead of Friday’s vote to demand elections, in a rally that ended peacefully.Government officials said they were not deterred by an initial hostile response by opposition parties to the coalition offer.”We will keep inviting (Samaras), and re-inviting him, again and again until we have a result,” Agriculture Minister Costas Skandalidis said.After seeing nearly two years of harsh austerity measures that spurred crippling strikes, violent demonstrations and street attacks against his lawmakers, Papandreou insisted the burden of painful reform could not be carried without help from opposition parties.”We, the Socialist party deputies, carried the cross of reform … But one group in Parliament is not enough,” he said. “This great task requires sincere and broad support.”Greece has been surviving since May 2010 on a first €110 billion bailout. But its financial crisis was so severe that a second rescue was needed as the country remained locked out of international bond markets by sky-high interest rates and facing an unsustainable national debt increase.The new European deal, agreed on Oct. 27 after marathon negotiations, would give Greece an additional €130 billion ($179 billion) in rescue loans and bank support. It would also see banks write off 50 percent of Greek debt, worth some €100 billion ($138 billion). The goal is to reduce Greece’s debts to the point where the country is able to handle its finances without relying on constant bailouts.In return for bailout money, Greece was forced to embark on a punishing program of tax hikes and cuts in pensions and salaries that sent Papandreou’s popularity plummeting and his majority in parliament whittled down from a comfortable 10 seats to just two.

Greek Crisis Is a Tragedy for Democracy

Prime Minister George Papandreou has rejected pressures to resign, but officials close to the leader expect him to scrap plans for a national referendum on the European bailout for Athens’ finances. Sadly, Socialists inside the fragile governing coalition and Continental political elites decided democratic decision making is a threat to their designs for One Europe. Democracy be damned!

Papandreou’s concession came after Socialist Finance Minister Evangelos Venizelos split with the coalition raising the likelihood a vote of no confidence would succeed. And President Nicolas Sarkozy, Chancellor Angela Merkel and other leaders publically challenged Papandreou to unconditionally accept the bailout. They see a referendum threatening their cherished euro. This false obsession with a single currency places at great peril the welfare of Greek people and their democracy.

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A demonstrator kicks a tear gas canister against police during a demo in Athens on Tuesday June 28, 2011. Greece's beleaguered government is bracing for a 48-hour general strike as lawmakers debate a new round of austerity reforms designed to win the country additional rescue loans needed avoid bankruptcy. (AP Photo/Dimitri Messinis)

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Protesters clash with Greek police once again as riots rock the country over new austerity measures.

The bailout plan would cut in half the privately held Greek sovereign debt. However, to receive this concession and other aid from richer EU governments, Greeks must accept draconian austerity measures. These would further drive up unemployment, and shrink Greece’s economy and tax base at an alarming pace, placing in jeopardy eventual repayment of Athens’ remaining debt.

Ultimately, Greeks would face reductions in their standards of living upwards to 50 percent, perhaps more, to generate the exports necessary to pay off foreign creditors. If everything goes as planned, Athens will still be saddled with a debt that is 120 percent of their GDP a decade from now.

Everything hardly ever goes exactly as planned, and 120 percent of GDP is an amount most economists believe is unworkable. Hence, the Greeks may bleed a lot for no real purpose than to sustain a failed experiment in a single currency, and the odds are steep against the plan succeeding.

Greece’s finances could easily be in disarray again within a year or two—perhaps sooner if the economic meltdown imposed by austerity snowballs.

The Greek people should be given the opportunity to vote on taking such a gamble, and their fate should not be left to leaders far beyond their borders and who they did not elect.

It is convenient for Europeans to blame the Greek mess on a government and citizens who deluded themselves into believing they could live beyond their means—forever—but the euro zone was fundamentally flawed from the start. It lacked the common fiscal institutions needed to somewhat equalize the social safety net across its participants.

More importantly, EU institutions are ill-equipped to deal with the fact that common currency across widely diverse economic regions and political jurisdictions will be overvalued for some—as in Greece, Italy, Spain and Portugal—and undervalued for others—like Germany. This makes the latter hypercompetitive, and leaves the former with chronic trade deficits, shortages of currency, the need to borrow, and eventually the crises these nations face today.

The bailout plan is a giant band aid for a failed euro and the mistaken belief that a common currency is necessary for a united Europe.

The EU was making very good progress toward an integrated continental market and greater political and cultural cohesion before the euro. The euro has become a symbol without a purpose—indeed a symbol with a destructive end.

Greeks should be given the option of staying in the EU but dropping the euro—essentially the status the UK enjoys. By readopting the drachma, remarking sovereign and private debt to the reinstituted national currency, and letting the value of the drachma fall to levels consistent with a trade surplus that permits Greece to service its debts, Greece’s economy would begin growing again, and many of Greece’s army of unemployed would be put back to work.

With a reinstituted drachma, foreign creditors would receive payments on Greek debt less than they are currently owed as stated in euro. However, with the Greek economy more fully employed and generating exports, the haircut a reinstituted drachma would impose would be far less than will ultimately occur though the mindless austerity now imposed.

Breaking ranks with the government, Venizelos stated “Greece’s place in the euro is a historical conquest by the Greek people that cannot be placed in question… this cannot be made dependent on a referendum.”

That thinking is backwards. The Greeks should accept the bailout and continue in the euro only if they determine the currency serves them well. As currently constituted, a single currency may serve the One Europe designs of France and Germany, but make Greece and the other Mediterranean states nothing more than the victims of a northern conquest.

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the U.S. International Trade Commission.


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