Greece Goes Back To The Center Right As Mitsotakis Defeats Tsipras

It is now a full decade since Greece sparked a sovereign debt crisis that threatened to rip a hole in the fabric of the Eurozone. On Sunday, July 7, 2019 Greece held a sixth general election since those dark days that saw Kyriakos Mitsotakis, leader of the center right achieve victory.

With more than 99% of votes counted, Mitsotakis’ New Democracy party had 39.85% of the votes, compared to 31.53% for Tsipras’ left-wing Syriza party.

The result sees New Democracy win 158 seats. A gain of 83 whereas Syriza have lost 59 seats and are down to just 86 in the parliament.

What is intriguing is that the election of a center right “conservative” party is at odds with recent trends in elections across Europe where the extremes of populism have gained favor. The extreme right-wing Golden Dawn party won just 2.98% of the vote and by just missing the 3.0% threshold it will not be represented in the parliament. Thank goodness for small mercies.

In his victory speech Mitsotakis said:

“I asked for a strong mandate to change Greece. You offered it generously, …From today, a difficult but beautiful fight begins.”

He is not wrong there. The nation still struggles under the weight of woeful economic metrics.

Greece recorded a government debt equivalent to 181.1% of Gross Domestic Product (GDP) in 2018. That compares to 126.7% in 2009 when Greece was close to bankruptcy.

GDP growth advanced by 1.3% year-on-year in the first quarter of 2019, following a downwardly revised 1.5% growth in the previous three-month period. That is a great improvement on the figure of 2009 when the economy contracted by 7.0%.

Sadly, unemployment is still too high at a national and youth level. The seasonally adjusted unemployment rate in Greece fell to 18.1% in March 2019 from a downwardly revised 18.4% in April 2019. Youth unemployment increased to 40.4% in March from 38.8% in February 2019.

One respects that these figures are far better than the worst levels hen unemployment reached 27.8% in July of 2013 and youth joblessness was at 60.2% in February of 2013.

Mitsotakis must be wary of falling into trap that befell his predecessor and not make too many promises that he cannot deliver.

He has pledged in the campaign to cut taxes, attract investment and improve the job market. What he should waste no time in doing is work toward making Greece more business-friendly, open and transparent, attract foreign investment, cut the bureaucracy, force the pace of privatisation and work toward reducing taxes when possible.

Given the delicate state of the Greek economy the new Prime Minister must make a break with “business as usual” and root out graft in all its forms. He has to crack down on tax evasion and only cut taxes when it can be afforded and, in that regard, start at the bottom, not the top.

I for one have never understood why Greece as allowed to return to the international capital markets when it was still in a bailout programme? If Greece had seen such a revival in its financial fortunes why as it deemed necessary to help the nation avoid debt repayments due in 2022 by extending the maturities out to 2033 at lower interest rates?

Maybe, the investment community is now fully convinced that the European Central Bank (ECB) will always act as the backstop bid for Greek debt, so giving speculators a free ride. It will be interesting to see how the head of the ECB, Christine Lagarde will react.

Another serious issue that will dog the new government is the return to politics of former Finance Minister, Yanis Varoufakis.

He was at one time in tandem with the former Prime Minister, Alexis Tsipras. However, when Tsipras took power and the reality of how Greece could survive dawned on him, he had to make compromises with the nations creditors. That abandonment of the hard-left mantra that Syriza had chanted when in opposition led to a rift between Tsipras and Varoufakis.

Now tMeRA25, the Greek wing of Mr Varoufakis’s new pan-European DiEM25 party, won 3.4% of the vote in the general election and they have nine deputies in the 300-seat chamber.

Yanis Varoufakis said:

“The size of our result is small but it is big enough to change a lot”

MeRA25 has declared its focus will be to counter the proposals of the Mitsotakis government that

“will try to sell off for peanuts what’s left of public assets and all that at the expense of the private sector”

Once again, Varoufakis is going to grab a disproportionate share of the headlines and his distorted, hard socialist view of economics will impede the steps that are required if Greece is ever to truly get back on an even keel within a slowly stagnating Eurozone. He sees most of his international foes as duplicitous and he certainly holds that view about Christine Lagarde from hen she ran the International Monetary Fund (IMF).

I wish Kyriakos Mitsotakis all good fortune as he faces the decade long Greek problem of what a Prime Minister can deliver will undoubtedly fall short of expectations. He will need all the international friends he can muster and just hope a noisy, outspoken Varoufakis does not force a rift between Greece and the ECB.