May to be this year’s de­ci­sive month?

Pol­i­tics will de­ter­mine whether the Greek econ­omy will suf­fer a set­back or en­ter a vir­tu­ous cy­cle in 2014

Kathimerini English - - Front Page - BY DIM­ITRIS KONTOGIANNIS

ANAL­Y­SIS Greece is ex­pected to make more progress on the macroe­co­nomic front in 2014, but a large part of the pop­u­la­tion is likely to come un­der more pres­sure as aus­ter­ity poli­cies bite deeper, in­creas­ing po­lit­i­cal risk in view of elec­tions for the Euro­pean Par­lia­ment and lo­cal au­thor­i­ties in May. Whether grow­ing pub­lic dis­con­tent may lead to a pe­riod of po­lit­i­cal un­cer­tainty re­mains to be seen. This will be the main fac­tor that will de­ter­mine whether 2014 will be a bad or good year for the econ­omy.

In some re­spects, 2014 is a lot like 2009. In the spring of 2009, for­mer con­ser­va­tive prime min­is­ter Costas Kara­man­lis re­port­edly sought the con­sent of main op­po­si­tion PASOK party leader Ge­orge Pa­pan­dreou to im­ple­ment tough mea­sures to cut the bud­get deficit. With just 151 deputies in the 300-seat Par­lia­ment and lit­tle in­flu­ence over trade unions, the New Democ­racy leader thought his gov­ern­ment would have been ousted if he were go­ing alone.

On his part, Pa­pan­dreou felt that con­di­tions were on his side with pub­lic dis­con­tent on the rise. He warned that PASOK would trig­ger elec­tions in the spring of 2010 and top­ple the gov­ern­ment by re­fus­ing to agree with the con­ser­va­tives on a can­di­date for the pres­i­dency, mean­ing the nom­i­nee would not get the 180 votes in Par­lia­ment needed. Kara­man­lis de­cided to carry on and suf­fered a com­par­a­tively mild de­feat in the elec­tions for Euro­pean Par­lia­ment in June 2009.

How­ever, he soon re­al­ized the need for an am­bi­tious pro­gram of fis­cal con­sol­i­da­tion and called early elec­tions in Oc­to­ber 2009. He ran a pre-elec­tion cam­paign on a plat­form of aus­ter­ity and re­forms and the

An­to­nis Sa­ma­ras was of the opin­ion back in 2009 that the con­ser­va­tives should have im­ple­mented fis­cal aus­ter­ity and not called early elec­tions. This time he has to make the call. New Democ­racy party, which had dis­ap­pointed even its core con­stituency with its past per­for­mance, was routed. PASOK and Pa­pan­dreou, who cam­paigned by telling the pub­lic that “there is money (for spend­ing),” won hand­ily.

Back to the present. Un­doubt­edly, con­ser­va­tive prime min­is­ter An­to­nis Sa­ma­ras is not Kara­man­lis, and un­like his con­ser­va­tive pre­de­ces­sor he leads a two-party coali­tion gov­ern­ment. Alexis Tsipras, the leader of the main op­po­si­tion rad­i­cal left­ist party, is not Pa­pan­dreou and he knows that even if his party wins it will have to form a coali­tion gov­ern­ment. But both face Euro­pean and lo­cal elec­tions in May and Par­lia­ment has to se­lect a new pres­i­dent next year.

More­over, Tsipras has made it clear he will seek gen­eral elec­tions if SYRIZA wins the May elec­tions for the Euro­pean Par­lia­ment. The party could also force na­tional elec­tions in 2015, when the term of cur­rent Pres­i­dent Karolos Papou­lias ex­pires, and it can count on pub­lic dis­con­tent to en­hance its elec­toral chances as the troika in­sists on more aus­ter­ity mea­sures to achieve pri­mary bud­get sur­plus goals in 2014 and 2015.

So, Prime Min­is­ter Sa­ma­ras is fac­ing a sim­i­lar dilemma to that of Kara­man­lis in the spring of 2009, al­though the eco­nomic sit­u­a­tion is quite dif­fer­ent. Pub­lic fi­nances have been put in or­der at a very high cost in terms of lost out­put, jobs and pur­chas­ing power. In ad­di­tion, the po- lit­i­cal land­scape is more fluid and gives rise to two sce­nar­ios.

Un­der a be­nign po­lit­i­cal sce­nario where the po­lit­i­cal risk does not trans­late into a pro­tracted pe­riod of po­lit­i­cal un­cer­tainty and the eco­nomic pro­gram is broadly im­ple­mented, even with some de­lays, one should ex­pect pos­i­tive eco­nomic out­comes.

Greece should pro­duce a big­ger pri­mary sur­plus than in 2013, per­haps close to the tar­get of 1.5 per­cent of GDP, and the cur­rent ac­count bal­ance may post a sur­plus. In ad­di­tion, re­ces­sion should con­tinue to re­cede and may give way to sta­bi­liza­tion and slim growth at some point in the sec­ond half of 2014, aided by another strong year for tourism and a small re­bound in in­vest­ment spend­ing with some high­way projects be­ing restarted. This should help sta­bi­lize and even trim the high un­em­ploy­ment rate, but will do lit­tle to make the pos­i­tive im­pact felt by so­ci­ety.

In this con­text, Greece should also be able to cap­i­tal­ize on the ex­pected debt relief mea­sures to be de­cided by the Eurogroup to par­tially ac­cess fi­nan­cial mar­kets at ac­cept­able bor­row­ing costs in the sec­ond half of the year. This should fur­ther boost mar­ket and busi­ness sen­ti­ment and put the vir­tu­ous cy­cle in full mo­tion, paving the way for a re­turn to growth which will be felt more by the masses in 2015.

Un­der an ad­verse po­lit­i­cal sce­nario marked by a pro­tracted pe­riod of po­lit­i­cal un­cer­tainty, the eco­nomic land­scape would be quite dif­fer­ent. Progress on the fis­cal front would be lim­ited at best and the chances for an eco­nomic re­cov­ery later in the year will be trimmed if not elim­i­nated as mar­ket sen­ti­ment turns sour, hurt­ing con­sump­tion and busi­ness in­vest­ments. Un­em­ploy­ment may even march higher and in­come in­equal­i­ties rise fur­ther as more peo­ple from the mid­dle class join the ranks of the poor. Greece will have no ac­cess to global mar­kets and will be forced to seek a new bailout loan with con­di­tion­al­ity. Since the main po­lit­i­cal forces do not want to leave the euro, they will have to swal­low the bit­ter pill but the econ­omy will have lost pre­cious time.

Of course, no one can say for sure what will hap­pen next May and be­yond. How­ever, it is clear that pol­i­tics will be the most im­por­tant fac­tor in eco­nomic de­vel­op­ments in 2014. It will de­ter­mine whether the Greek econ­omy will suf­fer a set­back or en­ter a vir­tu­ous cy­cle. Pre­mier Sa­ma­ras was of the opin­ion back in 2009 that the con­ser­va­tives should have im­ple­mented fis­cal aus­ter­ity and not called early elec­tions. This time he has to make the call but he has to count on the deputies of the ju­nior coali­tion part­ner, PASOK, to go along. It will not be easy.

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