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Greek PM Papandreou Out, Unity Deal in – but Would a Euro Collapse Be Best?

Posted on the 07 November 2011 by Periscope @periscopepost
Greek PM Papandreou out, unity deal in – but would a euro collapse be best?

Police and protesters in Syntagma Square, Athens. Photo credit: Endiaferon,

Greek Prime Minister George Papandreou agreed to step aside to make way for a new coalition government in an effort to stave off financial ruin on Sunday, marking the end of one very tumultuous chapter in the Greek debt crisis saga – and the beginning of another.

Papandreou, whose shock referendum announcement last week precipitated his downfall, met with main opposition leader Antonis Samaras to discuss the formation of a new government; no deal meant no €130 billion in debt aid that Greece desperately needs in order to avoid default.  And a Greek default, eurozone leaders worry, would mean the collapse of the monetary union as we know it. The pressure is on Greece now to come up with a new government that will push through the reforms other eurozone leaders such as German Chancellor Angela Merkel want to see, without coming apart at the seams.

Papandreou’s capitulation marked the end of a strange and dangerous time in Greece and in the global markets at large: After securing a bailout package from the European Union to finance Greece’s debts, Papandreou, responding to the tide of resentment and vehement public opposition to any deal that would require more austerity measures, decided to put Greece’s acceptance of the package to a vote. This turn for the democratic, however, inflamed the sensitive markets, brought both his own Socialist party and the opposition down on him, and earned the wrath of eurozone leaders, fearful that the fate of the entire euro rested in the hands of the angry Greek public. Papandreou scrapped plans for the referendum, but by then it was too late – despite surviving a no confidence vote on Friday, he was forced to step down for a government with wider support.

New elections will likely be held in February of next year, according to Bloomberg, citing a Finance Ministry statement. According to Greek paper, Ekathimerini, Lucas Papademos, a former vice president of the European Central Bank, is rumoured to become leader of Greece’s interim administration.

So it’ll be up to him and the new government, therefore, to navigate Greece’s rocky financial future – but does changing government at this point amount to nothing more than rearranging deck chairs?

“Will it save Europe from economic disaster? Probably not! But, what the hell, might as well try,” said Gawker of Papandreou’s resignation.

Goodbye, Papandreou. George Papandreou, Reuters reported, came into office as a Socialist reformer who would “lavish jobs and benefits on the poor and working class”; two years later, after months of having to do just the opposite, he’s out. Papandreou, who was born in St. Paul, Minn. and who is the son and grandson of two of Greece’s most influential former prime ministers, inherited a Greece more deeply in debt than anyone knew. In an effort to keep the country from bankruptcy, Papandreou was forced to enact a series of devastating austerity measures, prompting outcry from the Greek people that often verged into violence; critics outside Greece complained that his handling of the financial crisis was marked by indecision and stalling. “By May 2011, 77 percent of Greeks in an opinion poll said they no longer believed he could extricate them from economic meltdown. By October, only 23 percent had a positive view of Papandreou,” Reuters reported. Not exactly good for his legacy: “George Papandreou will be remembered by Greeks with more than a trace of bitterness as the man who smilingly declared ‘the money’s there’, even as the financial storm clouds were gathering,” wrote Kerin Hope at the Financial Times.

“The last thing I care about is my post. I don’t care even if I am not reelected. The time has come to make a new effort … I never thought of politics as a profession,” Papandreou said.

Should we feel sorry for Greece? The BBC asked this question of two experts on either side of the sympathy spectrum. Nicholas Walton of the European Council on Foreign Relations came down against sympathy for the indebted nation, complaining that Greece “has evidently squandered the benefits of being in the eurozone in a quite startling way” and citing Greece’s “national game of tax avoidance” and politicians profligate public spending as the problems. But, said Simon Tilford of the Centre for European Reform, “We should feel sorry for the Greeks, because they have been asked to do the impossible over the last two years. They have imposed public spending cuts that are greater than any developed economy has ever succeeded in carrying out.” Claims of backsliding or taking advantage of their eurozone fellows, he declared, are both untrue and unfair.

Sure, they’re spendthrifts – but we still have to bail them out. “[The Germans and the French] feel like the restaurant-goer who orders feta salad and tap water and is then expected to split the bill with friends who’ve enjoyed fillet steaks and six bottles of Rioja,” acknowledged Mary Ann Sieghart in The Independent. “But, like the majority of Britons who availed themselves of easy credit during the good times, the northern Europeans are not wholly blameless.” But regardless of where the blame rests – and those Europeans who pushed for the monetary union’s creation without also building a safety net for this kind of eventuality, and who profited mightily from the euro’s strength are to blame – bailing out Greece is the only option. Otherwise, the sucking morass that the Greek debt crisis is will just continue to pull in everyone around it, including those clever Brits who opted not join the euro. Benedict Brogan, over at The Telegraph, wondered what UK Prime Minister David Cameron is going to say to persuade the troops to get out the national wallet for another infusion to the IMF.

But a euro collapse could be good news for the eurozone and Britain. Actually, The Daily Telegraph reported, a disorderly euro collapse “would mean a short, sharp economic shock and probably a recession, but would be followed by a quicker return to strong economic growth”, according to the Centre for Economics and Business Research. Cameron and other claim that a euro collapse would be a kind of financial Armageddon, but the CEBR disagreed, declaring that it wouldn’t be nearly as bad as everyone seems to think, adding that “break-up would free many eurozone members from the deficit-cutting austerity policies that threaten to subdue their growth for years.”

The view from China. Editor of China’s Xinhua news, Zhang Xiang, complained that, “The political haggling in Greece has hindered the swift action urgently needed for tackling the debt crisis.” The euro is to help Europe, but Europe is to help the world, Zhang wrote, hinting that China, which is suffering its own credit crunch now, needs to see Europe deal with its financial woes. “The last two years have let go many chances of stopping the crisis when it was still germinating. The lack of political determination and executive ability has spelled disaster for the region. Now the world is expecting breakthroughs from the upcoming finance ministers meeting so that no more time is lost to tackle the crisis and put the situation under control.”

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