Last weekend’s elections in Greece leave a crisis-wracked nation in limbo. For a brief moment, markets rallied when the leftist Syriza party came in second, losing the ability to form the government under the parliamentary system. The markets soon surrendered those gains after realizing nothing was likely to change.
The center-right New Democracy party, with almost 30 percent of the vote and 129 of 300 seats of the House, probably will be the leading partner of whatever coalition is formed to govern Greece. Though initially anti-bailout, its leader, Antonis Samaras, has indicated his willingness to meet Greece’s international commitments. Center-left Pasok, the previous governing party, which was responsible for the bailout agreements and austerity programs at the heart of the political conflict, secured 12 percent of the vote and 33 seats. Together, those two parties would have a reasonable majority, and Greece would have an elected government in place after more than 200 days without one.
With an unemployment rate of almost 22 percent and a shrinking economy, Greece needs new leadership. The next government hopes to renegotiate the terms of the bailouts, but the idea is likely to meet a cool reception from the troika of lenders: the European Union, the European Central Bank and the International Monetary Fund. In any event, the victory of New Democracy means there will be no immediate disorderly default on obligations nor an exit by Greece from the eurozone, as the fiery leftist head of Syriza, Alexis Tsipras, had been promising in the event of a far-left majority.
Greece has been living beyond its means for decades. In 2009, the budget deficit was four times higher than the level permitted under Europe’s Stability and Growth Pact. Athens promised lavish pensions that it now lacks the resources to pay. It has borrowed vast sums, but those went to temporary fixes that merely postponed the day of reckoning. There have been some spending cuts, but a promising privatization program has stalled. The Greek government has tried to increase taxes, an effort that has largely been futile in terms of collecting revenue because the public already is tapped out.
Making matters worse, the real exchange rate has appreciated, making Greek exports much less competitive. Greece’s membership in the eurozone makes it impossible to correct this overvalued exchange rate, which in turn renders Greece an expensive vacation destination - a fatal position for a nation whose primary industry is tourism.
Greece’s new government needs to look beyond temporary fixes and making next month’s payroll. The Greek people have suffered through years of recession. It’s past time to put into place market reforms that will enable the economy to grow and create jobs for the young people who desperately need work.
Nita Ghei is a contributing Opinion writer for The Washington Times.