Tag Archives: bailout

Greece

Greek parliament prepares for 3rd and final presidential vote

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In the second of three presidential votes, the Greek parliament failed to elect the government’s center-right choice for president, Stavros Dimas (pictured above), a former foreign minister and European Commission member, in voting on Tuesday.Greece Flag Icon

Though it was the second time that Greek prime minister Antonis Samaras, both failures were expected, given that Dimas needed 200 votes in the 300-member Hellenic Parliament (Βουλή των Ελλήνων) in order to win the presidency outright in either of the first two rounds. That threshold drops to just 180 votes in the third and final round that will take place next Monday, December 29. Samaras is waging an all-out campaign over the weekend to convince enough legislators to support Dimas and, by extension, his government.

Dimas won just 160 votes in the first round, but Samaras, who governs a coalition that includes his own center-right New Democracy (Νέα Δημοκρατία) and its traditional center-left rival, PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα), increased that total to 168 in the second vote after winning over a handful of independents.

If the Hellenic Parliament fails to elect a new president, Greece will hold snap elections next spring and New Democracy might lose, as polls currently suggest, to the hard-left SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς). That could put Greece’s financial future in doubt as SYRIZA’s leader, Alexis Tsipras, pledges to reverse the austerity measures of the past six years and negotiate a bond haircut to lower the country’s debt burden, from the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund that provided Greece two bailouts worth €110 billion and €130 billion, starting in June 2010. 

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RELATED: Markets shouldn’t be freaking out about Greek elections

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Samaras starts with the existing ND-PASOK governing coalition, which controls 155 votes, there’s a theoretical bank of 46 additional votes, including 24 independents, 12 legislators from  Panos Kammenos’s Independent Greeks (ANEL, Ανεξάρτητοι Έλληνες), an anti-austerity spinoff from New Democracy and 10 additional legislators from the Democratic Left (DIMAR, Δημοκρατική Αριστερά), a new social democratic party and SYRIZA spinoff that joined Samaras’s coalition between the June 2012 elections and June 2013 (when it eventually withdrew to the opposition in the face of further austerity measures). Though DIMAR leader Fotis Kouvelis has indicated he will support SYRIZA’s call for early elections and will support a SYRIZA-led government, not all of the party’s members agree. Negotiations with the Independent Greeks have been equally tenuous, and one of its members accused the government of attempting to bribe him in exchange for his support in the presidential vote.

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Snap elections would coincide with the end of Greece’s bailout program in February 2015. The the next Greek government already faces a €22 billion budget shortfall between 2015 and 2016. Among the solutions currently under discussion is a short-term credit line from the troika or the IMF, though the troika is already demanding additional wage cuts and other fiscal contraction as part of the deal. Another potential solution might be to extend the repayment period by 20 years, equivalent to writing off around €50 billion in debt. Continue reading Greek parliament prepares for 3rd and final presidential vote →

Greece

Markets shouldn’t be freaking out about Greek elections

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It’s not surprising that Greek investors would be spooked by the idea of political turmoil that could replace Greece’s center-right coalition government with a radical leftist one as soon as February.Greece Flag Icon

That possibility became much more likely yesterday, when Greek prime minister Antonis Samaras brought forward a presidential election to replace Karolos Papoulias, the 85-year-old incumbent and a founder of PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα), Greece’s traditional center-left party, whose second five-year term was due to expire in March 2015. Greece’s presidency, a chiefly ceremonial office like in many European parliamentary systems, is determined indirectly by the Hellenic Parliament (Βουλή των Ελλήνων), not directly through national elections.

Samaras’s decision only moves up the presidential vote by two months. Samaras leads a coalition government of his own center-right New Democracy (Νέα Δημοκρατία) and its former rival PASOK. If the coalition fails to elect a president, it will trigger the government’s collapse, bringing forward parliamentary elections that would otherwise take place in June 2016.

The prospect of early elections and the possibility that SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς) and its charismatic leader, Alexis Tsipras (pictured above), could be running Greece’s economic policy within weeks was enough to send the Athens stock exchange tumbling by 12.78% on Tuesday, the largest single-day drop since 1987, as analysts went berserk explaining that a potential SYRIZA victory could spell doom not just to the European but to the global economy:

“Greece in the next 6 weeks may prove to be more important for global markets than Russia/Ukraine was in 2014,” said Charles Robertson, chief economist at Renaissance Capital. “A possible [SYRIZA] election victory may force the eurozone to choose between a fiscal union (debt write off for Greece) or the first Euro exit.”

Though voters might be weary of seven years of economic pain, Greece’s economy is actually growing at one of the highest rates in the eurozone, which is struggling with low growth and deflationary pressure. At a time when most Europeans have reason to be wary of 2015, Greeks should be confident that their economy has bottomed out, and employment and GDP growth should continue to improve in 2015 and beyond. In the long-term perspective, it’s a great time for stronger investment in Greece, not panic and divestment.

There’s reason to believe that Tsipras, once in power, would act responsibly. SYRIZA, and not PASOK, is now the standard bearer of the opposition left in Greece, but Tsipras has moderated some of his more firebrand positions. Though he is arguably the loudest critics of eurozone austerity, he is more solicitous of the investor class today than he’s ever been. Tsipras still wants to restructure Greece’s public debt (still a staggering 174% of GDP) by forcing a renegotiation that could lead to a haircut or other modification. Tsipras and his economic advisers have nevertheless committed a potential SYRIZA government to budget discipline, even while promising to ameliorate the worst of the drastic cuts to social welfare spending required under the terms of Greece’s two bailouts worth €110 billion and €130 billion, respectively, from the ‘troika’ of the European Central Bank, the European Commission and the International Monetary Fund. Reassuringly, however, Tsipras has essentially promised he will not default on Greek debt and he will not attempt to leave the eurozone. 

Tsipiras is probably correct that Greece’s debt burden is not sustainable. He’s also probably right that Brussels and Berlin would cave to renegotiating that debt if the alternative is a return to the ‘Grexit’ speculation and the financial market turmoil of 2012 when the ECB is trying to wage its own fight to expand the central bank’s reflationary ‘quantitative easing’ efforts. The upside for Tsipras, if he wins a new election, is that SYRIZA would likely take credit for Greece’s economic progress just as it’s beginning to emerge from the nadir of its recessionary cycle.

Continue reading Markets shouldn’t be freaking out about Greek elections →

European Union, Germany, Greece

An interview with Greek-German MEP Jorgo Chatzimarkakis

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Chatzimarkakis

If there’s anyone in European politics who straddles the line between the two cultural realities of Europe today, it’s Jorgo Chatzimarkakis.European_UnionGermany Flag IconGreece Flag Icon

Born in 1966 to Greek migrants in the Ruhr Valley, in what was then West Germany, Chatzimarkakis has served for the past 10 years as a member of the European Parliament from Germany’s liberal Freie Demokratische Partei (FDP, Free Democratic Party). 

Over the course of the past five years, that’s put Chatzimarkakis in one of the most unique roles of any European policymaker. As a German MEP, he belonged to a party that was one of the most outspoken critics of using German funds for what seemed, at the heart of the eurozone’s sovereign debt crisis, like an endless number of bailouts for troubled European economies, including Greece’s.

But as an MEP of Greek descent,  Chatzimarkakis also understood the emotional and social toll of the economic crisis from the other perspective, in light of the pain Greece continues to suffer due to the bailout — often referred to in Greece simply as the ‘memorandum,’ in reference to the Memorandum of Understanding that sets out the terms of the Greek bailout with the ‘troika’ of the European Central Bank, the European Commission and the International Monetary Fund.

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RELATED: In-Depth: European parliamentary elections

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Though the bailout program has kept Greece inside the eurozone, it’s come at a huge cost. The conditions Greece accepted in exchange for the loan program required tough budget cuts, tax increases, and reduced state salaries and pensions, exacerbating an economic downturn that, for Greece, has now developed into a full-blown depression. Unemployment is still nearly 27%, youth unemployment is even higher, and the Greek economy has contracted for six consecutive years:

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Cuts to education, health care and other programs have strained the Greek social fabric, civil strife and strikes are seemingly endless, and politician violence has increased. The neo-fascist Golden Dawn (Χρυσή Αυγή) is now the third-largest party in the Hellenic Parliament, despite the efforts of the current national government to prosecute many of its leaders. Though Greece’s economy may expand this year, for the first time since 2007, it’s clear that the effects of the downturn will reverberate for years to come.

In the 2014 European elections, Chatzimarkakis is running for the European Parliament in Greece, having formed a new political party, the Hellenic European Citizens (Έλληνες Ευρωπαίοι Πολίτες).  Continue reading An interview with Greek-German MEP Jorgo Chatzimarkakis →

Slovenia

Bratušek, Slovenia’s first female prime minister, resigns

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alenka

It’s been a busy season for politics in the Balkans this year — Croatia began the year for the first time as a member of the European Union, Serbia’s snap elections in March returned a resounding victory for Aleksandar Vučić and his center-right Progressives, protesters in Bosnia and Herzegovina are calling for new conditions to longtime economic and political stagnation, and Macedonia’s center-right government recently won a fourth consecutive term in power.slovenia

Now it’s Slovenia’s turn.

Alenka Bratušek, the country’s first female prime minister, resigned on Monday, calling into question whether the shaky Slovenian economy will avoid an international bailout that Bratušek worked to avoid in her 13-month government.

Bratušek’s resignation follows internal upheaval within her own party, Pozitivna Slovenija (Positive Slovenia), still a relatively new center-left political party. With voters fed up with the two dominant parties, Positive Slovenia burst onto the political scene in the most recent December 2011 parliamentary elections. It won the largest bloc of seats (28) in Slovenia’s 90-member, unicameral national assembly, the Državni zbor.

In the 29 months since the last election, Slovenia has now had both a center-right coalition government and a center-left coalition government, and both have fallen. That means that Slovenia likely faces snap elections this summer or early in the autumn, and Bratušek, 44, has suggested that she will form her a new party of her own to contest to them.

Bratušek (pictured above) was never the driving force within the party, however, whose founder is Zoran Janković, a former retail businessman who served as the mayor of Ljubljana, the Slovenian capital, from 2006 until 2011, and against since 2012 following his failure to become Slovenia’s prime minister.

Janković returned to the leadership of Positive Slovenia late last month after engineering a putsch ousting Bratušek as leader. That, in turn, unraveled the coalition that Bratušek built in February 2013.  Continue reading Bratušek, Slovenia’s first female prime minister, resigns →

Greece

Cracking down on Golden Dawn’s leadership is a risky strategy for the Greek government

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michaloliakos

Over the course of the past week, the Greek government stepped up its efforts to treat Greece’s hard-right, neo-fascist party, Golden Dawn (Χρυσή Αυγή) with the kind of speed and clarity that one rarely sees in Athens.Greece Flag Icon

Those efforts follow the stabbing of anti-fascist hip-hop artist Pavlos Fyssas over a week ago, which marked a turning point for the coalition government that center-right prime minister Antonis Samaras leads.  Greek authorities over the weekend arrested Golden Dawn’s leader Nikos Michaloliakos (pictured above) and other party members, including party spokesman Ilias Kassidiairis, on charges of belonging to a criminal organization.  It was an unprecedented action in Greece’s post-dictatorship democracy — the first time since 1974 that MPs, let alone a party head, were arrested.

But things took an awkward turn on Wednesday when three of the Golden Dawn MPs (but not Michaloliakos) arrested were released pending trial, adding to doubts that Samaras’s government is making the right choice in suddenly treating Golden Dawn as more of a criminal organization than a political organization, however vile its organizing beliefs.  Kassidiaris (more on him here) did himself no favors by kicking and pushing members of the media upon his release Wednesday.

Support was already crashing for Golden Dawn in the wake of the murder — the party dropped from winning around 13% support in polls to just around 6% or 7% last week in the aftermath of the Fyssas murder.  In real terms, that means that Golden Dawn would no longer be the third-largest party if elections were held in Greece tomorrow.  After winning 6.92% in the previous June 2012 elections, Golden Dawn currently holds 18 seats in the 300-seat Hellenic Parliament (Βουλή των Ελλήνων), and the party had been threatening to resign en masse, leading to distracting by-elections.  Golden Dawn, which began as a ‘nationalist socialist’ magazine in 1980, comprised mostly of misfit supporters of the right-wing military junta that ruled Greece between 1967 and 1974, was a very minor presence in Greek political life before — until Greece’s economy plunged into contraction, unemployment, misery and social discord over the past four years.  (Read more background on the group’s history here.)

If you want to understand why Golden Dawn’s popularity has ballooned, check out the trajectory of the Greek economy from growth to severe depression over the past seven years:

greecegdpGolden Dawn was already growing into something more than a political party — a mutual aid society to provide food and other necessities (but only, of course, to ‘pure’ Greeks) and a near-paramilitary outfit that drew, according to some Greek analysts, the support of 50% of the Greek police forces.

But Golden Dawn’s polling collapse was, even before the crackdown, good news for Samaras — right-wing voters who had flirted with Golden Dawn seemed to be returning to Samaras’s more conventional conservative New Democracy (Νέα Δημοκρατία), which has boosted it once again over the anti-austerity, leftist SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς).  Before the latest drama in Greece, SYRIZA had eclipsed New Democracy in many polls, even as Greece faces the humiliating prospect of requesting a third bailout from the ‘troika’ of the European Central Bank, the European Commission and the International Monetary Fund.

So why would Samaras make this push now?  His sudden aggressive tack against Golden Dawn comes with the risk that Samaras will transform Michaloliakos and his party into martyrs, thereby boosting their support when they might have otherwise faded away as Greeks backed away from a group with such openly neo-Nazi leanings. Continue reading Cracking down on Golden Dawn’s leadership is a risky strategy for the Greek government →

Germany, Greece

What kind of a deal can Greece expect after the German elections?

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merkelsamaras

Europe may be a non-issue in the German election campaign, but it’s becoming increasingly clear that Europe will occupy a chief role in the agenda of Germany’s next chancellor, perhaps more so than exclusively German domestic issues.Greece Flag IconGermany Flag Icon

Though center-right chancellor Angela Merkel and center-left challenger Peer Steinbrück are both stridently pro-Europe, it’s an open question how to next German government should deal with the poster-child of the European financial crisis — Greece.  To understand Germany’s options requires an understanding of the underlying Greek politics — and how a Greek political crisis could plunge the entire eurozone back into panic mode.

Even as Germany and the eurozone as a whole pulls out of the worst of the most recent recession, Greece continues to struggle with economic contraction.  The economy is set to shrink by between 4.5% to 5% this year, the unemployment rate is a staggering 27.6%, and this follows five consecutive years of recession capped off by a 7.1% contraction in 2011 and 6.4% contraction last year.  Greece remains trapped in a grueling internal devaluation where the private sector is being forced to accept leaner wages to make exports more competitive and the public sector is being forcibly downsized by the terms of the bailout programs agreed to by the ‘troika’ of the European Central Bank, the European Commission and the International Monetary Fund.  Greece today is not a fun place to live, and Greek voters are angry at Germany in particular for forcing so many Greeks into poverty and joblessness while doing little in terms of fiscal or monetary policy to boost the country’s medium-term growth prospects.

But German voters have their own narrative — while they’re still generally supportive of ever close union within Europe, they’re nonetheless wary of the European Union becoming a transfer union where wealth from German productivity flows to Greek profligacy.  That underlies the collective angst within the entire Germany political community late last month when Wolfgang Schäuble, Germany’s finance minister, indicated that Greece would require a third bailout — perhaps up to €11 billion, which is still a fraction of what the troika has already lent to Greece.  (For the record, Portugal’s government is also likely to require a second bailout of its own early next summer.)

Back in Greece, that means a politically radioactive set of negotiations at a time when Greece’s government is reeling.  A coalition between the two once-dominant parties since the return of Greek democracy in 1974, the center-right New Democracy (Νέα Δημοκρατία) and the center-left PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα) holds just a cumulative 155 seats, giving it the barest of majorities in Greece’s 300-member Hellenic Parliament.  After the disastrous shutdown of Greece’s public television station ERT in June, the anti-austerity Democratic Left (Δημοκρατική Αριστερά) left the governing coalition — its leader Fotis Kouvelis previously agreed to join the coalition after Greek’s June 2012 elections in order to provide more stability for the country.

Snap elections seem likely in any event sometime next year.  If elections were held today, SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς) seems likeliest to win them, according to a recent poll, making the young, massively anti-austerity opposition leader Alexis Tsipras Greece’s radical new prime minister.  The Sept. 11 Public Issue poll showed SYRIZA moving into first place with 29%, New Democracy with 28%, and the far-right, neo-fascist Golden Dawn (Χρυσή Αυγή) would win 13%.  PASOK, meanwhile, would fall to just 7%, the Greek Communist Party (KKE) would win 6.5%, the right-wing, anti-bailout Independent Greeks would win 5.5%, and the Democratic Left would win just 2.5%, less than the 3% threshold for entering parliament.

SYRIZA has essentially consolidated much of the support of the anti-austerity left, so it’s puzzling how PASOK still attracts even 7% support, given that it’s subjugated itself almost completely  to prime minister Antonis Samaras’s agenda.  But Golden Dawn’s support is rising, and it’s likely to pull support from increasingly frustrated right-wing voters that once supported New Democracy, suggesting that if economic conditions keep deteriorating, Golden Dawn could draw even more support to a largely xenophobic, nationalist agenda.

If those numbers held up in a new Greek election, Merkel and her colleagues in Paris, Brussels and other European capitals, would probably regard it as a disaster for Europe. Continue reading What kind of a deal can Greece expect after the German elections? →

Portugal

Portugal is set for a center-right government

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passoscoehlo

Twenty-two days later, Portugal is set to return to its center-right government, capping a month of twists and turns in a political crisis that began with the resignation of Portugal’s finance minister Vítor Gaspar and, then, the resignation of foreign minister Paulo Portas over the austerity program that Gaspar had been in charge of implementing as a condition of Portugal’s €78 billion bailout. portugal flag

Portugal’s prime minister Pedro Passos Coelho (pictured above) reached a deal over a week ago to continue the center-right government led by prime minister and his Partido Social Democrata (PSD, Social Democratic Party) in coalition with the more socially conservative party Portas leads, the Centro Democrático e Social – Partido Popular (CDS-PP, Democratic and Social Center — People’s Party), soothing the mercurial Portas by appointing him deputy prime minister and giving him additional input over future bailout discussions and the course of Portuguese economic policy.

But Portugal’s president Aníbal Cavaco Silva, formerly a PSD prime minister from 1985 to 1995, and himself often the subject of Portas’s barbed criticism, refused to approve the deal, instead asking the two parties to bring the opposition center-left Partido Socialista (PS, Socialist Party) into government for a ‘grand coalition’ that would govern through June 2014, the end of the current bailout program.

Read more background here.

Despite talks over the past week, the three parties have failed to come to an agreement, and Cavaco Silva will now approve the government, a move that’s already pushing down Portugal’s 10-year bond yield:

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Obviously, the Socialists would never join a government when they lead polls by nearly 10 points, despite the fact that it was the decision by Socialist prime minister José Sócrates to seek a bailout that led to snap elections in June 2011 that brought Passos Coehlo and Gaspar to power.

The challenge for Passos Coehlo is now three-fold: Continue reading Portugal is set for a center-right government →

Portugal

Coalition crisis brings Portugal back to center-stage in eurozone bailouts saga

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Cavaco Silva

Until today, Portgual’s beleaguered government looked like it would avoid crisis — just barely.portugal flag

But the decision by Portugal’s president to seek a broad unity government to carry out the terms of Portugal’s bailout program has cast doubt again on whether the center-right government led by Pedro Passos Coelho will be able to serve through the end of its natural term of government in 2015 or at least long enough to see through the termination of the €78 billion bailout program in June 2014.

Despite a deal last week that saw Passos Coelho’s more conservative coalition partners agree to return to government, Portuguese president Aníbal Cavaco Silva, who served as prime minister of Portugal from 1985 to 1995, is now pushing for a broader coalition in light of risks that the government might falter again.  Cavaco Silva’s top priority is that Portugal has a reliably strong government to see through the bailout program next year and to avoid snap elections now in favor of early elections sometime next June.

But that appears to have backfired, and it remains unclear just what will happen next in Portugal’s governing crisis — Cavaco Silva’s ploy may have made early elections even likelier, which are certain to become a referendum on further austerity measures in accordance with Portugal’s bailout.  The political crisis comes at a time when Lisbon was set to host International Monetary Fund and European Union officials next Monday for a review of the bailout program and amid reports that Portugal will require a second bailout when the current one runs out next year.

Portugal’s most recent crisis began when finance minister Vítor Gaspar resigned on July 1 after rising complaints over the implementation of the bailout program.  Gaspar, a technocratic economist first appointed after the June 2011 elections that swept Passos Coelho and his center-right Partido Social Democrata (PSD, Social Democratic Party) into power.  He had become the poster child for austerity and widely reviled as Passos Coelho’s party has fallen up to 10 points behind the main center-left opposition, the Partido Socialista (PS, Socialist Party) in polls.

Passos Coelho immediately appointed treasury secretary Maria Luís de Albuquerque as Gaspar’s replacement, but the following day, his foreign minister Paulo Portas resigned.  Portas, also the leader of his more socially conservative coalition partner, the Centro Democrático e Social – Partido Popular (CDS-PP, Democratic and Social Center — People’s Party), indicated that he would pull his party’s support from the coalition in opposition to the new finance minister’s appointment, arguing that it marked a continuity of policy with which Portas and his party now disagreed.

Nonetheless, a weekend deal between Passos Coelho and Portas appeared to have healed the rift — Portas would become deputy prime minister and take a larger role in steering the country’s finances, though de Albuquerque would remain as the new finance minister.  Though the deal required Cavaco Silva’s approval, it seemed likely to win it this week, given that Cavaco Silva (pictured above) had been crucial in bringing Passos Coelho and Portas back together.

Instead, Cavaco Silva’s call for a unity government to include the Socialist Party as well has renewed the Portuguese political crisis, given that the Socialists and their new leader, António José Seguro, continue to push for early elections rather than join a unity government.

Though Portuguese 10-year bond yields have fallen from a recent July 3 high of 7.47%, they edged up to a still-worrying 6.77% today after Cavaco Silva’s gambit.

While Cavaco Silva may have failed, his logic isn’t unreasonable.  Cavaco Silva’s goal was to steer Portugal between what he viewed as two poor alternatives — one in which he’ll have to trust  Portas and the conservative Christian Democrats to see through the bailout program, and another in which Portugal faces snap elections that could result in a hung parliament (or worse, if the two major leftist blocs outperform already robust expectations).

Continue reading Coalition crisis brings Portugal back to center-stage in eurozone bailouts saga →

Greece

Kouvelis, Democratic Left withdrawal from Greek government leaves precarious majority

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kovelis

Just a little over a year after the second of two divisive elections in Greece, the smallest partner in the three-party governing coalition withdrew its support today — leaving Greece ever closer to new elections, though the government will continue on with a slim majority for now.Greece Flag Icon

Fotis Kouvelis, in announcing that his party, the Democratic Left (Δημοκρατική Αριστερά), would leave the coalition over the growing row related to the sudden closure of ERT, the national broadcaster, emphasized that Greece did not need new elections, and he indicated that the party would perhaps provide external support to what’s left of prime minister Antonis Samaras’s coalition to keep Greece on track with respect to the terms of its bailout program with the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund.

What does that mean for Greece?

Though it’s true that the departure of the Democratic Left doesn’t necessarily mean new elections, it leaves the government in a precarious position.

Samaras’s New Democracy (Νέα Δημοκρατία), Greece’s longstanding center-right party, holds 125 seats in the 300-member Hellenic Parliament (Βουλή των Ελλήνων).  Its other coalition partner, PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα), Greece’s traditional center-left party, holds 28 seats.  Together, that gives the government an ostensible three-seat majority, though the 14 seats that Kouvelis delivered provided a wider margin for comfort over a year that’s seen Samaras’s government push forward with the fiscal adjustments mandated by the bailout program.

But more importantly, Kouvelis (pictured above, left, with Samaras in center background) delivered the votes of one of the two parties of the anti-bailout left, giving Samaras’s government a broader base and a credible claim to being somewhat of a unity government.

The Democratic Left formed only in 2010 when moderates split from the leftist SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς).  So while SYRIZA leader Alexis Tsipras is content to lead the opposition, Kouvelis and his party brought an outsized amount of legitimacy to Samaras’s government.  After all, both New Democracy and PASOK had backed Greece’s bailouts, and many voters have held the two parties, which switched back and forth in power in recent decades, especially responsible for Greece’s economic woes.

Their continued unpopularity is one reason why no one wants to risk elections anytime soon.  PASOK, in particular, has lost nearly all of its support among voters to the benefit of Tsipras and SYRIZA, which have given more muscular voice to the anti-bailout left.  If elections were held tomorrow, it’s not even certain that PASOK would pass the 3% threshold to win seats in the Hellenic Parliament.

One recent poll shows New Democracy holding onto a very narrow lead, with 21% to just 20.5% for SYRIZA.  In third place is the neo-fascist Golden Dawn (Χρυσή Αυγή) with a staggering 10.2%.  Greece’s far-left Communist Party (KKE) registered 5.7%, the center-right (but anti-bailout) Independent Greeks registered 5.2%.  PASOK won just 5.1%, and the Democratic Left won just 4.8%.

With such weak support, neither Samaras nor PASOK leader and former finance minister Evangelos Venizelos have an incentive to trigger new elections.  So while the chances that Greece will go to the polls for the third time in 12 months are slim, there’s no escaping the fact that the Democratic Left’s decision to leave the government is a setback for Samaras.  Continue reading Kouvelis, Democratic Left withdrawal from Greek government leaves precarious majority →

Portugal

Gaspar defends Portuguese economic program at Brookings

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vitor

Portuguese finance minister Vítor Gaspar (pictured above) spoke to a small audience at the Brookings Institution Tuesday, notably less than 36 hours after Cyprus and the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund agreed on the terms for a Cypriot bailout — the fifth such eurozone bailout during the currency zone’s sovereign debt crisis.portugal flag

Of course, Portugal is one of those of other five countries, and Gaspar, for the past 21 months, has been responsible for implementing the terms of Portugal’s own bailout program.

Gaspar presented as optimistic a case as possible for Portugal’s current economic state on Tuesday. But he admitted that despite gains in lowering the country’s budget deficit, restoring Portuguese banks to greater health, and boosting the growth of Portuguese exports (the latter as much a sign of painful ‘internal devaluation’ of wages and incomes within Portugal as any sign of newfound productivity or competitiveness), Portugal’s GDP growth and employment rate remain problematic.  The Portuguese economy contracted by 1.6% in 2011 and 3.2% in 2012, and is expected to contract by a further 2.3% in 2013, while its unemployment rate, as of the last quarter of 2012, is 16.9%, its highest level yet.

As Gaspar noted, Portugal’s economy — second only to Italy’s — was already on the ropes when it entered the eurozone.  In particular, from 1990 to 2012, he claimed that the Portuguese economy marked a poorer performance than either Japan during its ‘lost decade’ or the United States during the Great Depression.  Regardless of whether that’s exactly right, there’s no denying that Portugal has faced long-term structural problems — since 2000, it’s notched GDP growth in excess of 2% just once (in 2007, when it grew by 2.37%, and that was at the height of the eurozone and global credit boom).

Gaspar placed much of the blame on Portugal’s failure to pursue macroeconomic stability in accordance with ‘best practices’ — i.e., Portugal simply failed to adjust properly upon accession to the eurozone 14 years ago.

Gaspar serves under prime minister Pedro Passos Coelho, whose liberal, center-right Partido Social Democrata (PSD, Social Democratic Party) came to power in the last election in coalition with the more socially conservative Centro Democrático e Social – Partido Popular (CDS-PP, Democratic and Social Center — People’s Party).

Among his solutions are greater EU-level banking union as a means of reducing the risk premium associated with peripheral economies such as Portugal’s — Gaspar added that the higher borrowing costs that constitute financial headwinds, especially in the context of budgetary adjustment.

But it was surprising not to hear any mention of the emigration of up to 1 million Portuguese from the country over the past 14 years — and nearly 250,000 since 2011 alone.  Passos Coelho in late 2011 was criticized when he suggested that young, enterprising Portuguese citizens should emigrate to Portuguese-speaking countries, such as Brazil in South America, or to Angola in southeastern Africa, still in the throes of an oil boom.  Angolan visas issued to Portuguese nationals jumped from just 156 in the year 2006 to nearly 150,000 by mid-2012.

Mozambique, another former Portuguese colony, apparently issues 200 visas a day to Portuguese nationals.

Invariably, that escape valve has kept Portuguese unemployment lower than the rates over 25% recorded in Spain and Greece.

Edward Hugh at A Fistful of Euros has made a very compelling case that the emigration of younger, working age Portuguese, combined with a decreasing birth rate and greater longevity has resulted in relatively fewer workers contributing to pensions and health care for relatively greater numbers of retirees, placing extraordinary long-term fiscal pressure on Portugal, given the lackluster expectations for future growth: Continue reading Gaspar defends Portuguese economic program at Brookings →

Cyprus, European Union

What comes next for Cyprus and the EU following Friday’s haircut ‘bail-in’?

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cyprus

nicenic

So much for ‘nice Nic’ — it’s not that he’s reverted back to ‘nasty Nic’ so much as ‘nonessential Nic.’European_Unioncyprus_world_flag

Fifteen days after his inauguration as Cyprus’s new president, Nicos Anastasiades (pictured above, bottom), was forced into what’s now become a growing domestic, eurozone and international crisis when European Union and International Monetary Fund leaders presented Anastasiades with a €10 billion bailout package.

The catch, of which you’re almost certainly aware at this point, is that an additional €5.8 billion of savings will come in the form of a one-time levy on all bank accounts in Cyprus — deposits of  €100,000 will pay a 9.9% levy and deposits of under €100,000 will pay a 6.75% levy, even those deposits are insured by a system similar to the FDIC guarantee in the United States.  Senior bondholders won’t take a haircut.

So if you’re a hedge fund, for now at least, you’ll receive fully 100% of the face value of any debt you hold in Cypriot banks.  If you’re, say, a widowed Cypriot pensioner with €30,000 saved in a Cypriot bank, you’ll wake up Tuesday morning to find that you now have just €27,975.

It’s impossible to overstate just how politically explosive the plan was — in one fell swoop, Europe’s leaders have single-handedly done all of the following:

  • undermined the Cypriot presidential administration just days after it was elected with the support of those same European leaders and a promise by Anastasiades that any bailout would not include deposit haircuts;
  • provided ammunition to every euroskeptic in Europe from Beppe Grillo in Italy to Nigel Farage in the United Kingdom by reinforcing the notion that European institutions suffer from a lack of democratic legitimacy and gratuitously trample national sovereignty;
  • pulled the rug out from under the financial industry in Cyprus, essentially the only growing sector in the Cypriot economy;
  • handed to Cyprus’s parliament — where Anastasiades’s center-right Democratic Rally (DISY, Δημοκρατικός Συναγερμός or Dimokratikós Sinayermós), controls just 20 out of 56 seats — a strong reason to vote against the deal, thereby exacerbating the uncertainty throughout the week;
  • undermined the concept of deposit insurance throughout the entire eurozone;
  • by Europeanizing — or even internationalizing — what should have been a small matter in a country with a GDP ten times smaller than Greece’s, potentially initiated bank runs in Italy, Spain, and who knows where else throughout Europe;
  • needlessly antagonized Russia in the process, and may have provoked Russia into making a politically explosive counter-offer to Cyprus; and
  • probably did nothing to help Cyprus’s long-term economic outlook, because if the levy weren’t enough to depress Cypriot growth and undermine its banking industry, further austerity designed to reduce Cyprus’s public debt is certain to send Cyprus’s GDP swooning for some time to come.

That’s right — the first major decision of the Eurogroup of eurozone finance ministers since choosing as its president Jeroen Dijsselbloem, a center-left finance minister newly elected in the Netherlands just last autumn, is to demand an increase in the Cypriot corporate tax rate from 10% to 12.5% and a further increase on Cyprus’s savings tax.

That’s in addition to the deposit haircut that everyone’s mostly focused upon.

Anastasiades seems to have had very little option but to accept the deal, despite the fact that European leaders, including German chancellor Angela Merkel, actively supported his presidential bid in last month’s election:

[Anastasiades] spoke on Saturday of a ready-made decision imposed on Nicosia in the form of a blackmail: Take it or have the eurozone crumble….

In a written statement he issued on Saturday afternoon, Anastasiades said “Cyprus came across a previously made decision, a fait accompli.” In his defense he said that the emergency situation “did not arise in the last 15 days that we have undertaken the country’s administration.”

In the February 24 presidential runoff, Anastasiades won a landslide victory, with 57.48% of the vote to just 42.52% for health minister Stavros Malas, the candidate of the socialist Progressive Party of Working People (AKEL, Aνορθωτικό Κόμμα Εργαζόμενου Λαού or Anorthotikó Kómma Ergazómenou Laoú).  

Anastasiades, in an address to the nation Sunday night, meekly argued that depositors would nonetheless receive bank shares in return for the one-time assessment and remained optimistic that recently discovered natural gas deposits in Cyprus might well boost Cyprus’s banks in the near future.

ATM Cyprus

The political fallout for Cyprus 

To the extent domestic politics is to blame for the current Cypriot crisis, AKEL is far from blameless — it’s unclear whether Cypriots will fault Anastasiades less than half a month into his administration more than his predecessor, Demetris Christofias, the country’s president from 2008 until last month.

Christofias and European leaders opened talks in June 2012 to secure a bailout, and Christofias even began to implement some small reforms, including a 5% VAT on food and drugs and an increase in the bank levy and tobacco taxes, but fell far short of European demands to reform public employment, the public pension system, and privatization of state-run industries in a country where unemployment has now risen to 14.7%.

In addition, the bailout talks were particular complex for other factors, including the outsized amount of the Cypriot banking sector’s debt, tied in large part to the Greek debt crisis.  In addition, many Russian oligarchs have deposited money in Cyprus’s banks, and Cyprus has been scolded in the past for the facilitation of money laundering from less-than-pristine Russian sources.

With Merkel up for reelection in September, it would have hardly been palatable for her to push through a German-funded bailout of dodgy Russian depositors, which was apparent enough in the latest round:

Merkel’s Finance Minister Wolfgang Schäuble had gone to Brussels with a firm mandate from Berlin: “no bail-in, no bailout”, said a member of her government. That meant: unless depositors took a hit, there would be no agreement and Germany would not contribute towards a package for Cyprus.

So talks never quite progressed, and with Cyprus facing imminent sovereign default, Anastasiades came rather easily to office with a plan to renew those talks, though he repeatedly refused to accept a deposit haircut of the kind now being implemented.

Although today was a bank holiday in Cyprus, banks were initially set to close on Tuesday, but will now be closed until Thursday as well, as the Cypriot parliament has repeatedly delayed taking up debate on the Cypriot package.

Anastasiades’s DISY, as noted above, controls just 20 out of 56 elected seats in the Cypriot House of Representatives (Βουλή των Αντιπροσώπων) and AKEL controls 19.  The centrist Democratic Party (DIKO, Δημοκρατικό Κόμμα or Dimokratikó Kómma), which backed Anastasiades in the presidential race, controls another nine seats.  Three additional parties that largely supported the center-left, independent Giorgos Lillikas in the presidential election control an addition eight seats, including five by the Movement for Social Democracy (EDEK, Κίνημα Σοσιαλδημοκρατών or Kinima Sosialdimokraton).

That means that if AKEL, EDEK and other small parties oppose the deal, DISY and DIKO hold just of 29 votes, just enough to pass the Cypriot package without any defections.

Moreover, DIKO’s leader has already called for changes to the bailout legislation, and it looks increasingly like Anastasiades lacks the support to win a vote in parliament, which means that European leaders will have to renegotiate the previous deal.  It’s not clear how much time Cyprus has before its banks (or its government) become insolvent.

Cold War redux?

Meanwhile, Russian president Vladimir Putin denounced the decision as ‘unfair, unprofessional and dangerous.’

Russia hasn’t indicated whether it will extend or otherwise change the terms of an existing €2.5 billion loan to Cyprus — if Russia refuses to extend the loan for another five years, the Cypriot bailout will need to be even larger.  So there’s that.

I wouldn’t be surprised if Anastasiades and members of the Russian government are discussing an alternative to the current European-IMF plan — the Republic of Cyprus, which occupies the southern half of the island of Cyprus, is not a member of the North Atlantic Treaty Organization, and a €17 billion bailout would be a small price for Russia to pay in exchange for closer military ties or a Russian naval base on the island.

Perhaps even more tantalizing for Russia, and its state-owned natural gas company Gazprom, are newly discovered natural gas deposits that Cyprus hopes will fuel future economic growth.  Indeed, there are already vague reports of a Russian counteroffer — the official Russian news agency seems to indicate that emergency talks have now been initiated:

Russia’s Gazprom has not offered the Republic of Cyprus financial assistance in restructuring the country’s banks in exchange for the right to gas production in the exclusive economic zone of Cyprus. Gazprombank initiated this offer, a spokesman for the gas giant told Tass.

That result would cause dismay among the United States and its European and NATO allies which, by the way, includes Turkey.  Turkey has occupied the northern half of the island of Cyprus since the 1970s — the Turkish Republic of Northern Cyprus declared its independence from the Greek Cypriot republic to the south in 1983, and the two have remained divided ever since.  So what’s an economic crisis and a domestic political crisis could also become a geopolitical security crisis soon enough.

The economic and political fallout for the eurozone

Reaction from economic commentators has been essentially universally negative since news broke early last weekend. Continue reading What comes next for Cyprus and the EU following Friday’s haircut ‘bail-in’? →

Cyprus

Cyprus votes for ‘Nice Nic’ as Anastasiades sweeps to victory pledging bailout talks

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nikos

Cypriot voters have selected a new president in today’s runoff, finishing the business they started last weekend in the first round of the presidential election.cyprus_world_flag

Nicos Anastasiades, the candidate of the center-right Democratic Rally (DISY, Δημοκρατικός Συναγερμός or Dimokratikós Sinayermós) has won 57.48% of the vote to just 42.52% for health minister Stavros Malas, the candidate of the governing, leftist Progressive Party of Working People (AKEL, Aνορθωτικό Κόμμα Εργαζόμενου Λαού or Anorthotikó Kómma Ergazómenou Laoú), which will likely jumpstart talks between Cyprus and the European Union over a potential bailout.

Anastasiades nearly won the election outright last Sunday, when he garnered 45.46%, with just 26.91% for Malas and 24.93% for the independent, center-left anti-austerity Giorgos Lillikas.

Once derided as ‘nasty Nic’ for his hot-tempered manner — he is alleged to have once hurled an ashtray at an associate — he’s been all ‘nice Nic’ throughout the campaign.  The leader of DISY since 1997, Anastasiades was on the wrong side of a 2004 referendum when he supported the ‘Annan Plan’ to reunite the Greek and Turkish sides of the island; a majority of his own party and 76% of the Greek Cypriot electorate opposed the plan.  His election today, however, marks a triumphant personal comeback.

So what does Anastasiades’s victory mean?

First and foremost, Cyprus has chosen a new president who is much keener on securing a €17 billion Cypriot bailout for a government whose finances are on the brink of default, ironically, perhaps, due in part to the stage-managed default of Greek sovereign debt, which has had a disproportionately adverse effect on Nicosia (though the potential Cypriot bailout would dwarf the €245.6 billion Greek bailout).  Continue reading Cyprus votes for ‘Nice Nic’ as Anastasiades sweeps to victory pledging bailout talks →

Cyprus

Anastasiades, Malas head to Cypriot presidential runoff next Sunday

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Center-right presidential candidate Nicos Anastasiades (pictured above) overwhelmingly triumphed in Sunday’s presidential election in Cyprus, outpacing his nearest rivals by nearly 20%.  Nonetheless, he fell about 4.5% short of the 50% absolutely majority he would have needed to win the election outright and avoiding a runoff that will now take place next Sunday on February 24, despite early exit polls that showed he might win up to 52% of the first-round vote. cyprus_world_flag

Anastasiades, the candidate of the center-right Democratic Rally (DISY, Δημοκρατικός Συναγερμός or Dimokratikós Sinayermós), will face health minister Stavros Malas, the candidate of the governing, leftist Progressive Party of Working People (AKEL, Aνορθωτικό Κόμμα Εργαζόμενου Λαού or Anorthotikó Kómma Ergazómenou Laoú), who edged out alternative leftist candidate Giorgos Lillikas:

cyrpus 1st roundSo the question now is whether Lillikas’s voters will move en masse to Malas in the runoff or, alternatively, they will split between Anastasiades and Malas, thereby giving the center-right candidate sufficient support to win the presidency next week.

Anastasiades has pledged to move forward as quickly as possible to secure a €17 billion bailout that Cyprus needs to avoid sovereign default in a country that’s seen its public debt rise to 140% of GDP.  Although talks have been ongoing for over a year with the far leftist administration of outgoing president Demetris Christofias, the current administration has not been willing to implement the privatization of state industries that European leaders would require, though it has implemented tax increases and budget cuts over the past year.  Those austerity measures have worn down the popularity of Christofias and of his party’s presidential candidate, Malas.

At first glance, an alliance between Lillikas and Malas makes sense — both are generally to the left of Anastasiades, and Lillikas has campaigned on a platform of refusing to lead Cyprus into a bailout with tough conditions, arguing instead that Cyprus should rely on recently discovered offshore natural gas deposits to boost its public finances.  Lillikas, a businessman and an independent candidate, was supported by several small centrist and leftist parties, including the center-left Movement for Social Democracy (EDEK, Κινήμα Σοσιαλδημοκρατών or Kinima Sosialdimokraton).

Taken together, Lillikas and Malas polled nearly 6% more than Anastasiades in the first round, meaning that a majority of Cypriots appear to oppose the more austerity-focused bailout approach Anastasiades is very likely to pursue if elected.  But in order to upset Anastasiades in the runoff, Malas would have to sweep up over 93% of Lillikas’s first-round voters.  That seems unlikely, especially given that supporters of many of Cyprus’s political parties were split in the first round between Lillikas and Anastasiades, including the smaller Evroko (European Party) and Cyprus’s Ecological and Environmental Movement, both of which ultimately deadlocked over the issue of endorsing either Lillikas or Anastasiades.

But that’s especially true of Cyprus’s Democratic Party (DIKO, Δημοκρατικό Κόμμα or Dimokratikó Kómma), a centrist party that most recently held the presidency under Tassos Papadopoulos from 2003 to 2008, under whom Lillikas served as foreign minister from 2006 to 2007.

Although DIKO ultimately endorsed Anastasiades in the first round, many rank-and-file DIKO voters supported Lillikas, and that means it’s likely those voters will turn to Anastasiades in the runoff or, at least, abstain entirely from voting or protest-vote for neither Anastasiades nor Malas.

Once derided as ‘Nasty Nic’ for his reputation as a mean-streaked and hot-tempered politician, Anastasiades’s victory today marks a remarkable comeback since he fell from favor nearly a decade ago after supporting the ‘Annan Plan’ that would have reunited the Greek and Turkish sides of the divided island of Cyprus — over 76% of Greek Cypriot voters opposed the plan in a 2004 referendum, despite Turkish Cypriot backing for the plan.  The island remains split between the (largely Greek Cypriot) Republic of Cyprus and the (largely Turkish Cypriot) Turkish Republic of Northern Cyprus, following a 1974 Cypriot coup that led to an attempt by Greece to annex the entire island and a subsequent Turkish invasion of the north.

Although the Turkish/Greek issue has not been a significant issue during the campaign, if he’s elected as president next Sunday, Anastasiades may well find himself on the wrong end of Cypriot public opinion once again, given that he’s indicated he’s willing to make tough sacrifices in order to secure a bailout for Cyprus.  European leaders, including German chancellor Angela Merkel, have expressed support for Anastasiades, and it seems much likelier that Anastasiades could achieve a bailout deal for Cyprus.

Merkel and other European leaders would be likely to demand extremely onerous concessions though, certainly no less than the concessions imposed on Greece.  In light of the Cypriot banking sector’s less-than-pristine reputation on money laundering, it’s expected that a bailout would benefit dodgy Russian financiers and oligarchs whose money is currently deposited in Cyprus’s banks — a proposition that Merkel will likely find politically difficult with seven months to go until her own reelection campaign in Germany.

Armenia, Cyprus, Ecuador

Two days, three presidential elections: Cyprus, Ecuador and Armenia

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Sunday kicks off the first of two days of presidential elections in three very different regions of the world.

Unlike throughout, say, much of parliamentary-based Europe, each of the presidents elected in the next 48 hours will wield significant power, as each functions both as a head of state and as a head of government.cyprus_world_flagecuador flag icon newarmenia flag

Cyprus

The most contested of the three elections is in Cyprus, where Demetris Christofias is leaving office after a four-year term and where the European Union is set to push hard for bailout (or default) terms shortly following election season after previous talks have failed, due to Christofias’s refusal to privatize much of Cyprus’s public economy.  The frontrunner to win Sunday’s vote is Nicos Anastasiades, candidate of the center-right Democratic Rally (DISY, Δημοκρατικός Συναγερμός or Dimokratikós Sinayermós), and many European leaders seem keen on his election, which would certainly accelerate reform and austerity in Cyprus.

But his lead comes in large part from a split among leftist voters, who are supporting both Stavros Malas, minister of health, the candidate of the governing Progressive Party of Working People (AKEL, Aνορθωτικό Κόμμα Εργαζόμενου Λαού or Anorthotikó Kómma Ergazómenou Laoú) and Giorgos Lillikas, another center-left candidate and former foreign minister.

Although Anastasiades will likely win the first round, he’s not likely to win the 50% support necessary to avoid a runoff, which will be held, if necessary, a week later on February 24 when either Malas or Lillikas would have a clear-cut shot at defeating Anastasiades.

A failure to contain the Cypriot financial contagion, which brings with it the politically unpopular move of bailing out Russian oligarchs who have funded and deposited money into Cyprus’s banks, could exacerbate the still-tenuous Greek bailout or even jumpstart anew the eurozone sovereign debt crisis, so the outcome is more important to Europe than you might expect for an island nation of 1.2 million.

Ecuador

Less suspenseful is the presidential election in South America, where incumbent Rafael Correa is a prohibitive favorite to a third term by one of the largest margins in recent Ecuadorian political history — and certainly since the end of military rule in 1979.

Correa, whose governing Movimiento Patria Altiva i Soberana or Alianza PAIS (Proud and Sovereign Fatherland, or ‘PAIS’) is also looking to retain control of the 137-seat, unicameral Asamblea Nacional (National Assembly), has benefitted from an oil-backed economic boom, the proceeds of which he’s spent on massive infrastructural improvements, especially roads, as well as for direct cash grants that have helped cut Ecuador’s poverty rate from around 67% to between 25% and 30%.  In the tradition of the populist Latin American left, Correa defaulted on the country’s government bonds in 2008 and picked diplomatic fights with the United States.  Critics charge that his administration has become increasingly authoritarian, and his government has made the climate for Ecuador’s media somewhat less free.

His opposition includes Álvaro Noboa, banana magnate and one of Ecuador’s wealthiest businessmen; Guillermo Lasso, a former head of the Banco de Guayaquil; Lucio Gutiérrez, a former president who left office in 2005 after massive protests; and Alberto Acosta, Correa’s former oil and mining minister and co-founder of the Alianza PAIS.

None of those opponents has broken through, however, and Correa holds a lead well above 50% in most polls, meaning that he’s likely to win reelection without resorting to an April 7 runoff.

Armenia

Finally, in the South Caucasus, Armenian president Serzh Sargsyan (Սերժ Սարգսյան) is seeking reelection after taking office in 2008.

Despite a high-profile assassination attempt against opponent Paruyr Hayrikyan (Պարոյր Հայրիկեան) two weeks ago, Sargsyan is almost certain to win reelection — he faces only minor opposition, given that former president Levon Ter-Petrosyan (Լևոն Տեր-Պետրոսյան) ruled out a presidential bid, as did wealthy oligarch Gagik Tsarukian (Գագիկ Ծառուկյան), the leader of the largest Armenian opposition party, Prosperous Armenia (BHK, Բարգավաճ Հայաստան Կուսակցություն).

Sargsyan’s party, the Republican Party of Armenia (HHK, Հայաստանի Հանրապետական Կուսակցություն), currently holds control of the Armenian National Assembly after last year’s May parliamentary elections, and has held power since the election of Sargsyan’s predecessor and benefactor, Robert Kocharyan (Ռոբերտ Քոչարյան) in 1998.

After the election, Armenia’s president will face an economy that’s still recovering from recession and slow growth, balancing good relations with both Europe and the United States, on one hand, and Russia, on the other hand, the 100th anniversary of the Armenian genocide and dicey diplomatic relations with Turkey, and three decades of ongoing hostility with neighboring Azerbaijan, largely due to the unsettled status of the breakaway region of disputed region of Nagorno-Karabakh, over which Azerbaijan and Armenia went to war from 1988 to 1994.

Spain

Can Spanish prime minister Mariano Rajoy survive the kickback scandal?

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It’s hard not to feel some compassion for Spanish prime minister Mariano Rajoy’s government, which limped to its one-year anniversary only in December 2012.Spain_Flag_Icon

In that time, Rajoy’s government has weathered all of the following:

  • the passage of four budget cut packages and painful tax increases — income tax rates have increased, tax breaks for home owners have been eliminated and the Spanish value-added tax increased from 18% to 21%;
  • a volatile bond market that saw Spanish 10-year rates peak at 7.50% briefly at the end of July 2012, and the constant specter of yet another sovereign debt crisis;
  • an increase in the Spanish unemployment rate to 26%, just narrowly below Greece’s 26.8% unemployment rate;
  • yet another contraction in 2012 to Spanish GDP (1.4%) with a 1.5% contraction forecast for 2013;
  • a European bailout in June 2012 of €40 billion for Bankia, a conglomerate of conglomerate of cajas (savings banks) with exposure to Spain’s sagging real estate market, despite Rajoy’s campaign promise not to seek or accept a bailout;
  • the avoidance of a full European bailout of Spanish sovereign debt, while cagily working to ensure that the terms of any eventually bailout are on terms as favorable as possible (in part by holding out until the last possible moment for any potential future bailout);
  • a separatist coalition, propped up by former leftist supporters of the Euskadi Ta Askatasuna (ETA), took control of the regional Basque government in October 2012;
  • a high-profile showdown with Catalan premier Artur Mas in advance of Catalunya’s regional elections in November 2012 that exacerbated federal-Catalan tensions and all but assured a showdown over holding an independence referendum in 2014.

But now Rajoy’s government — and Rajoy personally — is facing perhaps its biggest crisis yet, in the form of an entirely self-inflicted scandal over slush funds, when it was reported last week that Luis Bárcenas, the former treasurer of Rajoy’s Partido Popular (PP, People’s Party), had been keeping unofficial books that provided expense payments for party leaders, including Rajoy, who received payments of up to €25,000 annually from 1997 to 2008.

The accusations come in addition to an ongoing investigation into the prior PP government of José María Aznar, the so-called Gürtel scandal involving kickbacks for contracts.  The most recent allegations involve slush funds, whereby proceeds came to Bárcenas from private construction companies and went out as payments to top party officials.  So the latest allegations could now also become a major focus of a judicial inquiry into the Gürtel corruption matter, endangering Rajoy’s government.

Alfredo Pérez Rubalcaba, leader of the center-left opposition Partido Socialista Obrero Español (PSOE, Spanish Socialist Workers’ Party), called on Rajoy to resign as prime minister last Sunday, and 10-year bond rates are already creeping back up once again.

Rajoy’s resignation could open a further Pandora’s box of adverse outcomes for Spain, including the appointment of an even more right-wing prime minister (ahem, Esperanza Aguirre) and early elections result in strengthening more radical leftists, in the same way that Greece’s 2012 parliamentary elections strengthened SYRIZA, a coalition of the radical left, in the Hellenic parliament.

Rajoy didn’t help matters much on Monday, when he perplexingly explained that reports are all ‘untrue — except for some things.’

That’s certainly not a great reassurance for Spain or for Europe — the last thing the European Union wants, with a Cyprus bailout now on the horizon, is for a political scandal to launch Spain into even more turmoil or cause financial panic anew.  German chancellor Angela Merkel, of course, is widely seen as hoping to wait through her reelection campaign later this year before pursuing any dramatic action on a new European treaty or more decisive action in the eurozone.  Continue reading Can Spanish prime minister Mariano Rajoy survive the kickback scandal? →