Economic Outlook: Syriza party falls short

By ANTHONY HALL, United Press International  |  June 18, 2012 at 10:17 AM
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With poetic justice, perhaps, the New Democracy in Greece eked out a victory Sunday with clear implications.

Despite the technical defeat of the Syriza party, the election moved the debate on international bailouts sharply to the left.

Interviews showed that few voters cast their ballots in favor of the international bailouts that have come with draconian spending cuts and a divestment of Greek government assets. Instead, the voters who stuck with the conservative New Democracy party were voting for European unity and if the bitter pill of a bailout was needed to preserve that, with consistent reluctance they were ready to pay that price.

Rejecting the bailout would have meant Europe would in turn have rejected Greece, as Syriza leaders, had they won, had pledged to renegotiate the bailout terms or toss out the package altogether.

The euro can get back to the business of dying slowly again, with investors facing an excruciating series of headlines every time Greece faces a deadline on fiscal goals it is expected to meet.

There are promising developments, however -- all of them based on fear.

European Central Bank President Mario Draghi is working with the European Commission to create a tougher region-wide bank regulator and a unified deposit insurance program. He is expected to announce details soon.

If this proposal survives, it would mean banks could fail but depositors would be safe. Regulators would then be faced with a European version of the argument "too big to fail" because governments rarely have the nerve to allow a big bank to go under, even if depositors have a safety net underneath them.

Going forward, terms of new bailouts are likely to be different, with fiscal goals imposed on government slanted toward operational costs so that infrastructure projects, the type of spending that creates jobs, can be spared. Of course, cutting operational costs also means the loss of jobs, but at least a gesture toward growth is likely to be in the works.

In Athens, the New Democracy party won 29.7 percent of the vote, which gives it 129 seats in Parliament, while Syriza earned 26.9 percent, giving it 71 seats.

That forces the New Democracy party to put a coalition government together and the only bedfellows left are the Pasok public union party, which earned 12.3 percent of the vote and the Democratic Alliance, which took 6.3 percent of the vote or 17 seats in Parliament.

Because New Democracy leaders need their support, Pasok suddenly can leverage its 12.3 percent of the vote to its advantage. Syriza could get seriously marginalized in the process and just because the government can turn its back on that large a percentage of voters doesn't mean that it should.

In international markets Monday, the Nikkei 225 index in Japan added 1.77 percent and the Shanghai composite index in China rose 0.4 percent. The Hang Seng index in Hong Kong climbed 1.01 percent and the Sensex in India lost 1.44 percent.

The S&P/ASX 200 in Australia rose 1.96 percent.

In midday trading in Europe, the FTSE 100 index in Britain was flat, rising 0.15 percent while the DAX 30 in Germany rose 0.35 percent. The CAC 40 in France shed 0.45 percent, and the Stoxx Europe 600 gained 0.03 percent.

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