On the Greek road to political instability

If ever Greece needed a strong government, it has to be today. In the months ahead, Greece must successfully implement the difficult conditions of its third International Monetary Fund (IMF)-EU bailout program, which is a necessary condition for Greece to remain in the euro. Sadly, all of the indications ahead of this weekend’s Greek election suggest that Greece will return a very weak government to parliament irrespective of which party actually wins that election. This is bound to raise questions anew as to whether Greece can remain in the euro.

{mosads}Over the past five years, a succession of Greek governments has proved to be incapable of successfully implementing the painful budget austerity and economic structural reforms demanded by its official creditors. These governments have covered practically the entire Greek political spectrum. They have included George Papandreou’s center-left PASOK government, Lucas Papdemos’s technocratic government, Antonis Samaras’s center-right New Democracy government and most recently Alexis Tsipras’s far-left Syriza government.

While the current polls for the forthcoming parliamentary election are suggesting that it is too close to call whether Syriza or New Democracy will win that election, they are strongly suggesting that the process of Greek political fragmentation that has been underway over the past five years will continue apace. Indeed, those polls suggest that, at best, Syriza and New Democracy will each poll barely 27 percent of the vote. They also suggest that between eight and nine political parties are expected to cross the 3 percent cut-off level and enter the Greek parliament. Long gone are the days when two centrist and traditional Greek parties like PASOK and New Democracy would together poll some 70 percent of the vote, as they did in 2009.

Under Greek electoral law, the party that gains a plurality of the votes is rewarded with a bonus of 50 parliamentary seats constituting 16 percent of the total. Judging by the current opinion polls, even with that bonus, it would seem to be clear that the winner of Greece’s elections will need to form a coalition with at least two parties if it is to have a workable parliamentary majority.

Not helping matters is the fact that Tsipras has ruled out any notion of Syriza forming a coalition with [a] New Democracy committed to faithfully implementing the conditions of Greece’s third bailout program. Also not helping matters is the very strong likelihood that the official creditors’ requirement that Greece implement further budget tightening and painful structural economic reform over the next two years will exacerbate the deep economic depression that the country is already experiencing.

The general experience in many other countries with coalition governments at a time of economic difficulty is that those governments tend to be weak and unstable. There is every reason to believe that the next Greek government will fit that mold. It is also all too likely that, if Syriza does not win this election, it will revert to its earlier role of strongly opposing the harsh conditions of Greece’s third bailout program.

All of this has to raise the basic question as to whether a new weak Greek coalition government will succeed in fulfilling the rigorous demands of its official creditors. This question would appear to be all the more pertinent when previous stronger Greek governments of all complexions have proved to be incapable of doing so. It also has to raise the question as to whether the issue of a Greek exit from the euro had been truly laid to rest with the announcement of the third bailout program last August and whether markets have become too complacent about the risk of such an eventuality materializing.

Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.