Greeks go to the polls this Sunday to cast their votes in municipal elections which are being cast as a public referendum for the left-leaning government; weak support for the government could trigger an early parliamentary election, causing political instability as well as undermining the country's long-term economic recovery.
IHS Global Insight Perspective
Significance: Greece
is holding the first round of municipal elections on Sunday (7 November).
Implications: The
polls are a major test for the popularity of the government, and its recent
austerity reforms aimed at improving Greece's fiscal situation and credibility
in the eyes of international markets.
Outlook: Weak
support for the ruling party could prompt the prime minister to call an early
parliamentary election, throwing Greece into political turmoil, and delaying
its economic recovery.
Greece is bracing for the first round of local elections
on Sunday (7 November), which could determine the future direction of the Greek
political scene. Voters will chose from a plethora of candidates vying to
become one of Greece's 13 regional governors (periferiach), the highest
position in the country's local government. The Greeks will also vote on a new
system of local government with a reduced number of regions and fewer local
government employees. The new system is designed to be less costly, while also
maintaining, if not improving, its overall effectiveness.
Risky Move
Under normal circumstances, the upcoming local polls
would not have significant importance for the wider political stability of the
country. However, Sunday's poll is perceived as an unofficial national
referendum or public vote of confidence in the ruling centre-left government
led by the Panhellenic Socialist Movement (PASOK) of Prime Minister George
Papandreou, and its austerity programme. The PASOK government assumed power
following last year's October snap parliamentary election, defeating its
centre-right counterpart, the New Democracy (ND) party. Ensuing revelations
about the true state of the country's public finances have created market
uproar, as well as forcing Greece to solicit an international rescue package in
order to stave off bankruptcy and assuage contagion concerns related to other
highly indebted Eurozone economies. In May, Greece accepted a financial rescue
package from international lenders, including the International Monetary Fund
(IMF), the World Bank, and the European Central Bank, worth 110 billion euro
(US$156.1 billion). In return, the government pledged to pursue an array of
restructuring and cost-cutting measures, aimed at helping the Greek economy
recover and improve its long-term performance. Some of the immediate measures
include: an increase in value-added tax (VAT), from 19% to 21% in March, and to
23% in July; pension system reform, including a later retirement age; and an
overhaul of the public sector, with cuts to public servants' wages. The
government has also pledged to open up restricted professions, including truck
drivers, notaries, taxi drivers, and pharmacists, as well as privatise
loss-making companies, notably Hellenic Railways (OTE). So far, progress on the
deficit-reduction front has been impressive. However, given the large size of
the deficit and the weakness of the economy, fiscal consolidation is only
likely to be achieved over a long period of adjustment.
Although the public generally acknowledges that reforms
are needed, the aforementioned measures have caused considerable tensions, with
nationwide protests and sectoral strikes frequently taking place. The local
elections will be an important test for the already-reshuffled PASOK
administration, and positive results would indeed provide Papandreou with
enough breathing space and a stronger mandate to continue its austerity drive.
Last week, the premier warned that if voters turned away from PASOK, he might
call an early general election, possibly as early as next month. Nonetheless,
neither Papandreou, nor his party confirmed the threshold for such a move. Such
a move is both bold as well as risky: many PASOK supporters who are generally
unsatisfied with the PASOK mandate, but oppose the early poll, may feel
black-mailed by Papandreou's call, which could also affect the party's
long-term popularity. Nonetheless, fearing the prospect of yet another snap
election, Papandreou's warning could prompt more PASOK supporters to cast their
votes, even if they originally planned to abstain otherwise.
Outlook and Implications
The outcome of the local polls is too close to predict,
and it is also uncertain whether Papandreou would really go ahead and call an
early general election should his party perform weakly come Sunday. While
markets remain sceptical as to whether Greece can sustain its current austerity
drive amid strikes, and now security scares after recent militant terrorist
activities , Greece has been praised for its progress in implementing reforms
and meeting conditions to qualify for instalments of the international credit
facility. However, more needs to be done, especially on the tax-collection
front, and in fighting corruption and easing red tape in public services. An
early parliamentary election would throw Greece into a period of political
instability, increasing markets' and lenders' doubts about the country's
resolve and seriousness to push ahead with reforms, and the potential for the
past months' improvements to be reversed. This could also undermine Greece's
credibility in the eyes of investors and international partners, and inevitably
prolong, if not deepen, its economic and financial woes.
PASOK currently holds a thin, but still comfortable
parliamentary majority, which could change if the early parliamentary election
was held now. The party still remains the most popular in Greece, overreaching
the ND as well as other smaller factions currently represented in opposition.
However, its popularity is waning, and it is highly unlikely that a snap
election would lead to a strong result, as was seen in 2009. In the best case
scenario, PASOK would gain a razor-thin majority, however the more likely
outcome would be that it would lose its majority but remain the biggest single
party in parliament. This would force PASOK to reach out to other smaller
parliamentary parties with the aim of creating a coalition government. Both of
these options would make the government's ability to pass future structural
reforms more difficult. This would also undermine Greece's overall political
stability and inevitably also its long-term economic recovery.
It is uncertain whether the Sunday vote will turn out in
favour of the government, or whether the voters are set to turn their back on
Greece's political system completely, through either abstaining or supporting
smaller factions. What is, however, certain, is that Greece is bracing itself
for yet another nail-biting vote which will determine its political future as
well as the direction of reforms.
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06/04/2008| |
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26/03/2008| |
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13/03/2008| |
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10/03/2008| |
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07/03/2008| |
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18/02/2008| |
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01/02/2008| |
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21/12/2007| |
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08/12/2007| |
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02/11/2007| |
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30/10/2007| |
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29/06/2006| |
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28/06/2006| |
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26/06/2006| |
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26/06/2006| |
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21/06/2006| |
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21/06/2006| |
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20/06/2006| |
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20/06/2006| |
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04/06/2006| |
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09/05/2006| |
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03/05/2006| |
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03/05/2006| |
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03/05/2006| |
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03/05/2006| |
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18/02/2006| |
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04/02/2006| |
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04/02/2006| |
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29/01/2006| |
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23/09/2005| |
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