May 15, 2012
Today’s negotiations in Greece on the creation of a government of technocrats have broken down. Talks will resume tomorrow morning, but only in order to appoint a caretaker cabinet which will remain in office until new elections take place – in all likelihood as early as mid-June.
Although widely expected, the outcome of today’s meeting is going to create further political and economic uncertainty over the future of Greece in the eurozone. So what could happen now?
First off, it’s by no means certain that a stable government will come out of the next elections. The latest polls indicate that left-wing SYRIZA could be the biggest party, but it would still have to form a coalition government. However, following the latest tough round of talks, the outspoken leader of SYRIZA Alexis Tsipras (in the picture with Greek President Karolos Papoulias) doesn’t seem to have many friends – the Communist Party has ruled out a left-wing coalition since the very beginning of the electoral campaign, and Democratic Left leader Fotis Kouvelis said yesterday that he would no longer cooperate with Tsipras, even after new elections. On the other hand, Tsipras has repeatedly said that he doesn’t want to become a ‘complicit’ of New Democracy and PASOK – the only two Greek parties that insist on the need for Greece to stick to the EU-IMF bailout programmes.
Needless to say, this would complicate Greece’s position vis-à-vis its eurozone partners. As Eurogroup Chairman Jean-Claude Juncker told reporters in Brussels yesterday, there could be some room for Greece to negotiate a relaxation of its deficit targets if a serious new government can be formed. As we pointed out here, Greece may well be heading towards a series of inconclusive elections. This would make it very difficult indeed for Germany and the others to justify the disbursement of future tranches of bailout money.
Greece’s euro exit is becoming increasingly likely – not just because it’s being talked about by a growing number of top European politicians – although we still think that Greece’s anti-bailout parties may ultimately soften their stance, potentially paving the way for a compromise. What’s most interesting is the fact that figures are being put on the impact of a Greek euro exit (and consequent default). A couple of hours ahead of Francois Hollande’s inauguration ceremony, outgoing French Economy Minister Francois Baroin told Europe 1 that Greece’s euro exit and default “would have a net cost of €50bn” for France, “plus the debt held by banks and insurance firms in their portfolios.” Le Figaro did its own estimates, and put the cost at up to €58.5bn – that is, €895 per Frenchman.
Quite a busy eurozone day. As usual, you can follow our live updates on Twitter @OpenEurope, and continue to check out our blog for updated analysis.Open Europe blog team