Europe: Austerity in nothing but name

Europe: Austerity in nothing but name
Illustration for the article "Europe: Austerity in nothing but name".

EUROPE - It was almost exactly five years ago that the euro financial panic which threatened to tear Europe apart erupted in Greece. So there is an element of ironic symmetry in the fact that the year ends for Europe's currency with another Greek political crisis.

Chances are high that the latest troubles in Greece will not shatter the euro; the armies of financial analysts who frequently predicted this were invariably proved wrong.

Still, Europe's single currency will continue to be buffeted by political showdowns. And the reality remains that the euro's survival is entirely in the hands of Germany, precisely the sort of outcome nobody wanted when the currency was created.

The Greeks invented drama and, as their current internal political showdown indicates, they remain true to their vocation. The crisis started when the Greek government decided to call presidential elections.

In theory, that should be irrelevant: it's up to Parliament rather than the public to elect the president, and Greece's head of state is of the ceremonial kind. So, this crisis resembles a storm in a cup of Greek yogurt.

Apart from one snag. Under Greece's Constitution, if Parliament fails to elect a president in three consecutive votes held over three weeks, fresh general elections have to be called.

And, since the ruling centre-right government does not have sufficient parliamentary seats to elect its presidential candidate, the danger of early general elections is pretty high.

That is an awful prospect, for the party which now tops the popularity stakes in Greece is an extreme left populist group which wants to repudiate the country's foreign debts and return to Greece's old habits of borrowing and spending as though nothing had happened.

Unsurprisingly, therefore, investors are spooked.

But matters are unlikely to go that far.

To start with, Greece's Prime Minister Antonis Samaras, a wily political operator who has been in and out of government for decades and who sits for the same parliamentary constituency his family has controlled since World War II, would not have called this presidential showdown if he didn't believe he could win it.

All that Mr Samaras needs to do is to persuade a few opposition MPs to support the government's presidential candidate, and that is not difficult in a country where people often enter politics in order to line their pockets.

But, even if Mr Samaras fails, new Greek general elections are not necessarily a disaster for Europe, even if they result in the election of an irresponsible populist government.

With most financial markets now on better footing and European banks recapitalised, the European Union can now afford to simply ignore a misbehaving Greece which, after all, accounts for only 1 per cent of the continent's overall gross domestic product (GDP).

The real worry about the euro is elsewhere; that while the Greeks huff and puff in public with no consequence, France and Italy - the euro zone's second- and third-biggest economies respectively - are flouting the rules governing the single currency with more silent, yet more methodical and potentially disastrous consequences.

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