Saving Greece and/or the EU?

The last Greek elections ended their monopoly. The competition for the 300 seats in the Parliament (Greek election law affords 50 extra seats to the winning party) ended with a fragmented political landscape.

Together the two old ruling parties could only garner 33 percent (New Democracy 18.8 percent, 108 seats; Pan-Hellenic Socialist Movement (PASOK) 13.2 percent percent, 41 seats. Second place was won by the Coalition of the Radical Left (SYRIZA), with 16.8 percent. Surprisingly, Independent Hellenes got 10. 6 percent (33 seats), and the far right Golden Dawn got 7 percent and won 21 seats in the parliament. Communists won 26 seats, and the Democratic Left won 19 seats. However, 19 percent of the electorate that voted for other parties could not get their representatives into the parliament. Additionally, 35 percent of Greek voters refrained from going to the polls. With so much underrepresentation and fragmentation it soon became obvious that a coalition government could not be formed and fairly represent a disgruntled and fragmented society.

The elections demonstrated two features of Greek society: The patronage system created by the two parties that had ruled Greece until now and laid the ground for the financial disaster that has beset the country; and secondly, people showed their anger and frustration with austerity measures imposed by the European Union.

The Greek election results will affect the future of the eurozone. When indecisive Greek election results are considered together with the electoral victory of French President François Hollande, who promised a re-negotiation of the Franco-German deal that initiated the Europe-wide austerity measures, many changes may be anticipated.

Yet there are economic necessities. Debts must be paid. Productivity must be increased. Bond markets must be agile. With these principles in mind European creditors who are overseeing the bailout program of Greece decided to withhold 1 billion euros from a promised loan of 5.2 billion euros.

Greek electors are not the only angry voters; the aging populations of affluent European countries want a more comfortable and secure life than their conservative leaders can offer. The electorate feels that their politicians on the right favor the system more than the citizens.

That is why Mr. Nicolas Sarkozy lost to a Socialist. His close ally in EU economic matters -- Ms. Merkel of Germany -- received a heavy blow from the Social Democrats (SPD) and the Greens in last week’s North Rhine-Westphalia elections. Both were political leaders who had backed hard austerity measures for the troubled members of the EU.

While it is debated whether Greece will leave the eurozone or not, there are other European countries in default that are suffering through recession and austerity like Italy and Spain. The battle between the political will of the people and the demands of the market will clash until a new balance is reached.

However, the expected balance will come at a price: lower wages, less public and private spending and more savings. If any government seems unwilling to meet these demands Europe’s creditors may seriously restrict loans, putting member governments at peril -- a tug of war that will likely go on for years to come.

We now know that the “sin” is shared; so is the burden: The enormous debt accumulated by the smaller countries is mainly due to the credit boom that was made possible by the richer EU countries with current account surpluses. Easily accessible loans by the poorer European countries with lower productivity revitalized their demand, which in turn generated growth. But the process led to wage inflation, low competitiveness and colossal debt. Given the nature of the financial crisis, recovery in the eurozone may take a long time (a decade?).

But Greece’s troubles are more robust. Her decision to leave the eurozone would be catastrophic for both this country and the Union. The EU had struck a deal in 2008 for governing the economy of the members. Building stronger fiscal surveillance, more effective enforcement procedures, a more resilient and proactive central bank and more active bond markets was aimed at facilitating the fiscal discipline needed to ward off crises. Now Greece’s exit may hamper all that. Hence, the burden of keeping Greece afloat and other members in default will be mainly on Germany given the fact that France will be reluctant.

The problem is whether the Greek people will be willing to pay the price of this generosity that will return as “less of everything”!