Wednesday, May 2, 2012
Upcoming Greek election may produce new crisis
The leftist PASOK party and the center-right New Democracy party have been the two most popular parties for decades in Greece and between them have usually formed governments. However both parties support the new austerity measures imposed by the EU and creditors. The result has been a plunge in their popularity.
Although polls up to April 20th at least (see this site) indicate a probable slim majority for the two combined perhaps this may not happen as more and more voters swing to other parties who do not support the austerity measures.
The result is that 8 to 10 different parties are expected to gain seats in the 300 member Parliament. Even if the two main parties are able to form a government it will probably be quite weak. It may be difficult to carry out all the tough demands required to get the 170 billion dollar loan just recently approved.
Desmond Lachman who previously worked as an economist for the IMF says that we are witnessing the calm before the storm as Greece has faded from the headlines. Its debt has even been upgraded!
Lachman notes that over four years Greek GDP has dropped by 14 per cent. In spite of the fact the IMF has already loaned Greece 37 billion dollars it predicts that GDP will drop another 5 per cent this year.
Unemployment in Greece is already 18 per cent but among youth it is a horrendous 40 per cent. This is a sure recipe for more social unrest.
Lachman calls the austerity policies pushed by both the IMF and EU insane. They produce precisely the worst results since the slower economic growth causes the deficit to grow as revenues decrease.
After the election the government has a June deadline to approve another 14 billion dollars in cuts. The spending cuts are equal to 5.5 per cent of GDP.. Even before these new cuts wages and pensions were slashed by up to one quarter. For more see this article.