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The morning after the night before

18 June 2012

9:00 AM

18 June 2012

9:00 AM

This morning’s front pages are devoted to Greece, and the consensus is that the result of yesterday’s election amounts to little more than a stay of execution for Greece and the euro. At the time of writing, markets have responded to the news positively; but, fundamentally, nothing appears to have changed, so expect further turmoil.

The formation of a Greek government is the foremost problem. James explained last night that the pro-bailout party New Democracy is unlikely to form a coalition with the centre-left PASOK party, which had indicated that it would only join a coalition that included radical leftists Syriza. This impasse persists for the moment, but there is speculation that PASOK might support New Democracy on a supply basis. Spokesmen for New Democracy are confident that agreement will be reached in a few days, adding that they expect PASOK to renege on its pledge to Syriza and form a coalition. This sounds remarkably like the brazen chicanery that was a feature of coalition talks after the last election in Britain.   


If a Greek government is formed, it will start the task of recalibrating the bailout. A New Democracy spokesman told the Today programme that Greece must be given ‘a couple of years more’ to implement the austerity agenda, adding that deferring would save the country from being ‘torn apart’.

This will shift attention to Berlin, where Angela Merkel is being pressed to abandon her ‘step—by-step approach’ in favour of adopting a ‘big bazooka’ or some such silver bullet. Any attempt to change course, even by a couple of degrees, will have to be agreed with Francois Hollande. His anti-austerity hand has been strengthened by recent elections, which have given his party firm control of parliament.

The political events of the last 6 weeks have claimed proud scalps and wrecked august parties; but, above all, they have made Angela Merkel’s task doubly difficult, robbing her of natural allies and making the markets even more nervous. It seems a very long time since her command of the situation was such that she quashed Greek PM George Papandreou’s attempt to hold a referendum on the bailout in November last year.


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