Geopolitical analysis: The futility of European elections
Source: Stratfor.com , Author: George Friedman
Posted: Tue June 19, 2012 8:12 pm

INTERNATIONAL. Europe and the financial markets watched intently June 17 as Greece held general elections. German Chancellor Angela Merkel, French President Francois Hollande and Italian Prime Minister Mario Monti all delayed their flights to the June 18 G-20 summit in Mexico to await the results.
 
The two leading contenders in the elections were the center-right New Democracy Party (ND), which pledged to uphold Greece's commitments to austerity and honor the country's financial agreements with the European Union and the International Monetary Fund, and the Coalition of the Radical Left (SYRIZA), a group of far-left politicians who pledged to reject Greece's existing agreements, end austerity and maintain the country's position in the eurozone.

A third major party, the center-left Panhellenic Socialist Movement (PASOK), shares the ND's position of maintaining Greece's bailout agreement. PASOK had been Greece's ruling party until it formed a unity government with the ND late in 2011.
 
For a while it seemed these elections would be definitive. Either Greece would reject the country's agreement with its international lenders, potentially being forced out of the eurozone, or it wouldn't. If Greece rejected austerity and forcibly or voluntarily left the eurozone, the country might set a precedent for other troubled states and precipitate a financial crisis -- a eurozone exit and default would likely go hand in hand. Europe would be tested as never before, and it would find out how resilient it is to a wider financial crisis.
 
But in Europe, the least likely outcome is a definitive one. ND won the election with about 29.5 percent of the vote, earning 78 seats in parliament plus another 50 seats awarded to the winning party by the Greek Constitution. SYRIZA received roughly 27.1 percent of the vote, equivalent to 72 seats, and PASOK received roughly 12.2 percent of the vote, or about 33 seats.

The rest of the vote was scattered among a host of other parties. A party needs 151 seats to gain an absolute majority in parliament, but since no single party passed that threshold, a governing coalition must be formed. So the ND needs PASOK if it is going to cobble together a governing coalition, but PASOK has said it will not join a coalition without SYRIZA.

It is unclear what a coalition would look like between a party that wants to respect the bailout agreement and a party that wants to reject it, but such a coalition is unlikely to happen anyway. SYRIZA wants to form a powerful opposition. Something resembling a government eventually will be assembled regardless of current rhetoric.
 
The Greek vote has settled nothing. In fact, it may not even lead to the formation of a government; the last election failed to produce a government and forced this election. That the European crisis most severely affected a country so politically fractious could be seen as pitiable.

On the other hand, one could argue that the crisis inevitably would be most severe in the most divided country -- not because the divisions caused the crisis, but because the crisis caused the divisions.
 
The pressure brought on by the circumstances in Greece undermined whatever political order was in place; the choices for policymakers were so limited and so frightening that coherent responses were difficult. Greece has options, but it is unable to choose one.

More than anything, Europe wants a decision on its future, whatever that decision might be. On June 17, Greece disappointed Europe not because of the choice it made but because it was crippled with indecision.
 
Crisis Management
 
Greece's indecisions are at the ground level of Europe. Another and more significant framework for indecision is emerging in Franco-German relations. The French Socialist Party won an absolute majority the same day that the Greeks entered another gridlock. This makes it possible for France's Socialists to form a government without the Greens, giving Hollande a strong and coherent platform from which to operate.
 
France's position on managing the sovereign debt crisis differs fundamentally from Germany's. Germany has said it will not agree to proposed solutions that would essentially turn the eurozone into a transfer union until the rest of Europe can balance their budgets through austerity measures.

Germany believes this must be the first step to further EU and eurozone integration. Hollande takes a different position. He, too, wants greater European and eurozone integration. However, Hollande advocates economic stimulus alongside austerity measures as a means to rebalance the finances of European governments.
 
Hollande wants to grow Europe out of its financial problems. This means stimulating economies, a process that requires deficit spending. Hollande upholds a traditional Keynesian tenet that increasing demand for goods among consumers will increase economic activity and increase investment.

As a Socialist with a strong leftist contingent in his party, Hollande cannot support the German position, which constrains the economy, particularly by decreasing government expenditures, thereby depressing consumption.
 
The difference between the French and German approaches is substantial. It reveals a dispute at the heart of the European strategy for managing the crisis. The Germans have been aggressive in demanding balanced budgets. The French are becoming equally aggressive in demanding expansionary policies. Both want to avoid defaults, but the Germans want to guarantee payments of debt by a combination of bailout and austerity. The French want to add stimulus to this, which changes the situation entirely because the stimulus would be funded in large part by German coffers.
 
This is not a simple matter of divergent economic theory. It is a matter of national interest. France is not as economically decrepit as Spain or Italy, let alone Greece, but nonetheless it is feeling the pressures of the financial crisis. If Europe continues on its path toward recession, France will face higher unemployment and therefore domestic political pressure under the German plan. It is not in Hollande's or France's interests to follow the German course.

For its part, Germany cannot risk further government deficits in the European economic system. Germany's robust economy gives the country a financial cushion to soften the effects of deficit cuts; the rest of Europe, including France, does not have this luxury.
 
Interestingly, France and Germany were as one on this issue until Hollande was elected president. Indeed, the foundation and mission of European integration has been the close alignment of Germany and France. A founding principle of the union, such an alignment guaranteed stability and discouraged conflicts that had torn Europe apart. Now, Europe has lost its coherence at the highest level, albeit in a more orderly manner than in Greece.
 
Disharmony and Public Opinion
 
Of course, the situation is not that simple. What Germany says it wants differs from what it allows to happen. Germany claims to favor disciplined austerity, but more than any other country Germany needs the eurozone to stay intact. It is thus willing to compromise on austerity and on underwriting bad debts.

On the other hand, Germany rejects the idea that a systematic strategy to stimulate growth is needed or likely to work. France sees no other solution, lest it face austerity itself. Both want different fiscal policies from the members and also, logically, from the European Central Bank.
 
From the most beleaguered members of the European Union to the relations between its strongest and most stable members, there is now profound disharmony. What drives this disharmony is public opinion. The Greek public is divided politically; therefore, Greece is paralyzed. France held an election in which Hollande, who holds serious doubts about German policy, forced out and replaced former French President Nicolas Sarkozy, who shared the German position on managing the crisis.
 
It is not the policymakers that are divided. Rather, the electorate is driving apart policymakers. The German solution to the problem is so unpalatable to the rest of Europe that traditional elite politicians supporting Germany's plan, such as Sarkozy and former Greek Prime Minister George Papandreou, are being replaced. Their replacements tend to reject the German position.
 
Indeed, political reality has constrained the actions of European lawmakers. Until about five years ago, a broad consensus governed Europe when it came to EU matters, and politicians were free to align themselves with Europe. This is no longer the case -- the solution for maintaining Europe has diverged. Most important, Germany has become the problem in the eurozone where once it was the solution.
 
Structural issues, such as German dependence on exports to the European Union, only partly explain the change in Germany's public perception. More accurately, German methods for managing the crisis increasingly are seen by other countries as significant threats to their well being -- there is not one anti-German coalition. Germany wants to find accommodation with France. The problem rests in how the French and German views are reconciled. France is not yet leading a coalition against Germany, but it is difficult to imagine a different scenario.
 
The more elections are held, the more the public will force their leaders in various directions. More often than not, this direction will eschew austerity and Germany. Over time this will solidify into a new map. While this has yet to happen, the recent elections at the least are not solving Europe's problem.

In fact, they may be further dividing the Continent. And there are many elections to go.

This article is republished with permission from STRATFOR.

© 2012 STRATFOR. All rights reserved

 

 

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

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