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The IMF’s Folly: A Failed Approach in New Global Economy

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Last July, in a rather controversial decision, Christine Lagarde was appointed as the Managing Director of the International Monetary Fund (IMF). The controversy surrounding her appointment was primarily because with it, the IMF continued to be a primarily Eurocentric institution. Many had hoped that a financial leader from the developing world, namely Mexican economist Agustin Carstens, would be appointed, and become the first non-European to hold that post. Carstens was supported by the Latin American governments, Spain, Canada and Australia. And despite Carstens being arguably more well qualified for the position, Lagarde was appointing. In doing so, the IMF signalled that they would continue to focus on Europe, and leave the developing world largely to the wayside. Yet with this move, coupled with their failure to alleviate the global recession up to this point, many are questioning the place the IMF should play in the modern global economic order.

The primary reason the IMF’s role is being questioned is because of failure in the Eurozone. One of the IMF’s key purposes is to promote stability in the international economy, and does so largely by handing out large loans to floundering nations. However, the catch is that in order to get a loan from the IMF a nation must install strict austerity, raising taxes and slashing spending. And while often times, this ensures that the IMF gets their money back and that the the country reduces their debt, many consider the IMF’s approach to be stifling to economies trying to recover.. Those who take the approach of John Maynard Keynes would argue that in times of recession, governments must build up large debts and deficits in order to spend and get the economy kickstarted. The IMF however prevents any nations which get loans from doing so. In terms of the Eurozone debt crisis, the IMF has loaned large sums of money to suffering countries, primarily Greece. Yet the approach of constant austerity may not be the right direction to go with the Eurozone. So the IMF has been loaning out large sums of money, but the restrictions they impose in doing so may be stifling economic growth, This is one of the largest criticisms of the IMF and one of the largest reasons their necessity in the world is questioned.

The other primary reason that the IMF may no longer have a place in the world is because they have seemingly abandoned the developing world. In addition to helping developing nations with loans, the IMF is supposed to help promote economic stability in developing nations and drive down poverty. But with their focus on the Eurozone, the IMF has done no good for developing nations. In fact, the IMF has actually started to collect more money from each member. While this increase will impact the larger nations, it will have a much larger impact on developing nations. With enough to worry about, the IMF is simply piling on concern to the developing world.

The IMF has seemingly failed recently, both in the Eurozone and by abandoning the developing world. Yet the IMF can turn things around. First they should select a Managing Director who represents a large selection of nations that may very well be the economic engine to get us out of this recession. Then, ditch the forced austerity, and allow nations to get their economies back on their feet before they worry about getting down their debt. If the IMF can do so, they will re-establish themselves as an institution which is both necessary and beneficial for global economic stability.

 

Filed under Economy, International
Sep 11, 2012

Facebook’s Floundering Stock

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This month, shares of Facebook’s stock have fallen below $20, just over half of the Initial Public Offering (IPO) for Facebook, $38. Yet, what happened to a stock that at one point caused so much excitement and how can its problems be remedied?

One of the biggest problems for Facebook started early, with a failed IPO. After its IPO, many realized that Facebook was drastically overpriced. This meant that many true investors simply abstained from Facebook. While there was excitement, the major players in the market forced the stock down at its inception to a more reasonable price. Yet, since this, the price has continued to drop. There are also a number of purely financial reasons, like poor earnings reports, but here, I will focus on the problems within the company.

Much of it has to do with a transition within Facebook. For a long time, Facebook has simply been able to feed off of growth. They made money as the network grew simply because it was growing so quickly. Yet now, Facebook has reached a saturation point. It has mostly infiltrated many developed markets, and infiltrated, to the extent it can, the developing markets. While it still has growth, the growth is slowing. With this, Facebook, in order to maintain profitability, needs to change its advertising revenue. It can no longer depend on advertising revenue to grow with the expansion of the network, but rather must make its advertising more profitable. Facebook continues to change and tweak their system to make it better, yet advertising is the one area that is not improving.

But the underlying cause of this largely comes down the management. As a private company, funded by a few investors, Facebook, led by Mark Zuckerberg, was able to basically run free. It could continue to be on the bleeding edge technologically, and go whatever way Zuckerberg saw fit. The network, from the beginning, had Zuckerberg’s fingerprints all over it. Yet now, with saturation, the company must shift focus. Additionally, being publicly owned, Zuckerberg needs to listen to his investors. But he is instead caught in the crossfire between bleeding edge technology and sound business choices. This means that his performance as CEO has been lackluster, both technologically and business-wise.

Aside from revenue, many investors and consumers are wary of Facebook’s privacy policy. Facebook has updated their policy many times over the past few years, each time restricting privacy more and more. Yet now, as a publicly owned company, they will find that they will not be able to do so. Additionally, many are afraid of what Facebook might do with all the information it holds. Facbeook is essentially a receptacle to peoples’ lives; it holds all sorts of vital information. For this reason, Facebook’s privacy policy has been a great source of fear for many, leading some investors to be even more wary of it.

So with Facebook in this state, what can they do? The issue of privacy can simply be remedied by putting in steps to lock down people’s privacy and become less of a walled garden. However, the issue of transitioning, both from its constant growth as a network and from a privately owned company, is a bigger issue. Mark Zuckerberg is undoubtedly a technological genius, but he is just that, not a business guru of any sort. While he has grown Facebook privately, as a publicly owned company Zuckerberg is not the man for the job. What Facebook should consider is a similar process which Google went through in 2001. While before Google’s 2004 IPO, in 2001, Eric Schmidt came in and took over as CEO of Google, after having managerial experience as CEO of Novell and president of Sun Technology Enterprises. While founders Larry Page and Sergey Brin maintained primary control over the technological direction of Google, Schmidt handled the legal and business aspects of Google. Page and Brin, like Zuckerberg, were simply programmers, not businessmen. Like Google, Facebook could benefit from having a more business-minded person step in as CEO and make sure that Facebook is on the right path. This will not only ensure Facebook remains profitable, but also boost investor confidence.

Facebook is becoming a ubiquitous social network, yet if they continue under the poor business direction of Mark Zuckerberg, they will flounder. However, by simply inviting in a businessman to help get Facebook on the right path in its turn around to a developed network and a public company, they will excel. The stock has fallen not because of a lack of technological innovation, Facebook remains on the bleeding edge, but because of a company that is not yet ready for its new chapter.

 

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Aug 27, 2012

Opinion: Why Can’t the Eurozone Be Friends?

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This summer, news over the Eurozone debt crisis has been fairly quiet, primarily because the Eurozone leaders have been on summer vacations. Yet they are starting to return, and work is beginning again. After replacing Lucas Papademos in June, Antonis Samaras, current Prime Minister of Greece, will face his first big challenge in drumming up international support. He will visit Angela Merkel, Chancellor of Germany and Francois Holllande, President of France. Samaras’ primary goal will be an extension on debt owed and loosened impositions of austerity. Basically, Samaras will go begging to the two biggest leaders in the Eurozone to try to get them to loosen the shackles they have put on Greece. But with Greece once again asking for relief, the Eurozone leaders are no doubt questioning what to do for Greece. After many negotiations have ended with nothing, simply in-fighting, the next few months for the debt crisis will be as vital as ever.

Many are no doubt looking at some form of Eurozone breakup, ranging from Greece being the sole exiting country (being called “Grexit”), the fringe countries all exiting or simply the Eurozone not existing anymore. However, when looking at the collateral damage caused to everyone, both the creditors (Germany and France primarily) and debtors (Greece, Spain, Portugal, Italy, Ireland etc.), any sort of breakup does not seem possible. For the creditors, it leaves them with huge sums of unpaid debt, and for the debtors, they have no help from outside forces to get their economies back on track. While many within the creditors, especially Germany, are pressuring their leaders for a breakup, they do not realize just how disastrous this could be.

The other option, and the one that seems to make the most sense, is a further mutualization of economic burden. Basically, the Eurozone needs to create a Eurobond, which essentially equalizes all debt in the Eurozone. This would require debtors and creditors to get along better, but doing so may work. Creditors would suffer a minor blow from this, but not as large as could be imposed with any sort of break up. Debtors meanwhile, would feel much of the burdens of their debt lifted, and in turn would be able to focus on getting their economies back on track. Additionally, inflation needs to be introduced to further ease economic burden. It would only minorly affect the creditors, while greatly helping the debtors. Together, however, these approaches would only somewhat ease the debtors, bringing them back slightly from the verge of collapse. Once this equalization of the burden is done, the debtors still will find themselves dealing with struggling economies. While no longer bridled with debt, they will need to cut down unemployment and get their various sectors producing again. In order to do so, stimulus must be introduced. The idea that austerity will help economic growth is faulty once the issue of large debts is mostly dealt with. This stimulus should be primarily a plan resembling the New Deal, one of government spending in infrastructure and such that will benefit everyone. Greece, in their recession, has revealed several infrastructure problems, including electricity, and government induced stimulus could help to fix them. With this stimulus, there must also be a focus on youth unemployment, as it is one of the primary ailments of Greece and other debtors. If they can get the young, motivated workforce back to work, this will be an important catalyst in economic growth. Debt mutualization, coupled with inflation and direct government stimulus will allow debtors to see necessary short term outcomes, while creditors will see long term growth.

Europeans are suffering debt crisis fatigue. Those in the creditor countries feel like their money is being drained into the debtors. The debtors meanwhile are feeling fatigue over the stringent austerity that has been imposed. Yet by mutualizing debt, and creating system-wide growth, both sides will begin to see each other in a new light. Fatigue will be lifted.

So as the leaders get back to work, if the creditors can agree to take a bit of the fall for the debtors, and help the debtors grow, stability and growth can be restored to the Eurozone. Because of the bickering that has been experienced in all negotiations, this may be a stretch, but working together will work better.

Filed under Economy, International
Aug 19, 2012

The Untold Story of High Unemployment

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When July jobs numbers were published, the report was far from straightforward.  163,000 jobs were added, a number far better than any other monthly gain this summer.  However, the unemployment rate increased to 8.3%.

The numbers underline the fact that even with increased hiring, America’s unemployment crisis is far from resolution.  Even though the unemployment rate has fallen from a high of 10% in 2009, much of the drop can be attributed to discouraged workers giving up on their job search as well as workers accepting part time jobs when they want full time work.  The commonly cited unemployment rate does not include these categories, but with their inclusion, the unemployment rate would jump to 15%.

Stubbornly high unemployment creates a search for solutions.  Naturally, politicians have jumped on the issue, citing various reasons for America’s employment woes and presenting voters with the corresponding solutions.  The big accomplishment by Congress so far has been the passage of the Jumpstart Our Business Startups (JOBS) Act, which was designed to ease regulations on small but growing businesses.

The JOBS Act is a good start, but a mere easing of regulations is not a panacea.  Unfortunately, more powerful bills that deserved bipartisan support have instead been ripped apart by partisan gridlock.  Congress has the small solutions down, but fails to agree on the big ones.

The best example to explain this deals with outsourcing, which has caused millions of American jobs to be sent overseas.  Democrats proposed a bill that would give tax cuts to companies that brought these foreign jobs back to America.  This ‘insourcing’ bill utilized tax cuts as an incentive, a strategy Republicans have touted as a strong solution to unemployment woes.  The bill seemed ready to receive bipartisan support and easy passage.

However, any hopes for bipartisan approval quickly came crashing down.  Spurred by Republican attempts to amend the bill with a repeal of Obamacare, Democrats decided to block all Republican amendments.  Angered that Democrats were refusing any amendments whatsoever from the minority party, Republicans refused to pass the bill.

But outsourcing is not the only issue Congress has failed to adequately address.  Another large-scale problem known as ‘hollowing out’ remains mostly unchecked.  ‘Hollowing out’ occurs when companies, faced with economic difficulties, lay off mid-income workers.  High-income workers in crucial management positions in addition to low-income workers who provide cheaper labor are excepted to assume the responsibilities of the fired workers.  Even when the economy picks back up and hiring resumes, these middle class workers find that the nature of their old positions have changed to the point where there is no longer a need for their skills.

The current recovery has demonstrated that companies can return to former profits without rehiring fired workers.  While this means that overall economic growth has continued, this growth is not coupled with a drastic reduction in unemployment.

Fixing this problem of a hollowed out job market is not easy, as there is no simple solution to making middle class jobs crucial to businesses.  Tax cuts may persuade companies to hire, but a true fix to hollowing out would also require a difficult restructuring of positions within these hiring companies.  While politicians have often lamented this shrinking of the middle class, their attempts to solve the underlying problems have been inefficient or nonexistent.

Many employment problems have not yet been adequately addressed.  However, for a true economic recovery, government should do more to solve the big problems, and finally get people back to work.

 

Unemployment Data From Bureau of Labor Statistics – http://www.bls.gov/news.release/empsit.t15.htm/

Filed under Domestic, Economy
Aug 6, 2012

Argentina’s Inflationary Boogeyman

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In 2001, the world experienced its largest ever sovereign debt default. After a long, 2-year downward spiral, Argentina finally decided they could no longer afford to pay off their debt. Yet, after several years of recovery under Nestor Kirchner, and after his passing, Cristina Fernandez de Kirchner, Argentina has started to get back on its feet. Yet, recently the International Monetary Fund cut predicted growth in Argentina from 8.9% last year to 4.2%, a huge drop. Clearly, Argentina’s economy is beginning to suffer. Given that many were thinking Argentina might soon become an economic powerhouse and could rival Brazil if it continued its growth, this is a significant drop. And with it, many are wondering what is the boogeyman responsible for economic slowdown. Most signs point to inflation.

In a healthy economy, 4-6% inflation is good, it means the money supply is expanding fast enough that the economy as a whole can expand. Yet Argentina is dealing with inflation on a massive scale. Currently, inflation on the peso is at about 9.9%, something incredibly devastating for its economy. This high inflation is creating a number of ripples throughout the Argentinian economy. The most important is Argentina’s inability to establish a domestic market. While exports in any economy are good, a domestic market creates a stable economy, one which can continue its growth and development. However, in Argentina, because of their high inflation, Argentinian citizens have trouble buying goods, foreign or domestically produced. Their money is simply losing value at a rate that makes it almost impossible for Argentinians to truly consume. Additionally, Fernandez is doing nothing to alleviate this. Fernandez has continually levied barriers to trade in Argentina in an attempt to make Argentinian goods more competitive on the domestic market. This has had some positive benefits, as many corporations, which already invested in Argentina, have built factories and tried to produce more goods in Argentina. Yet, in doing so, Fernandez has also made goods more expensive, simply because there is less competition on the market.

But poor policy does not stop there. Recently, Argentina passed legislation which expands powers of the central bank. Yet the expansion of these powers is primarily to help fund the treasury, which is greatly in debt. But in funding the treasury’s debt, the central bank is also pumping even more money into the economy, thus creating even more inflation. Because of poor policy choices, coupled with already high inflation, a domestic market in Argentina has greatly suffered and has therefore stagnated its economy.

Clearly, Argentina is in a bad position economically. High inflation destroys the possibility of establishing a solid domestic market. And because the rest of the world economy is still trying to recover, with even leading developing nations beginning to slow, Argentina cannot depend on any one else to buy Argentinian goods and revive its economy. In order to continue Argentina’s path toward an established economy, Fernandez must stop making the kinds of monetary and trade decisions she has, and tackle the issue of inflation. Tackling the inflationary boogeyman is the only way that Argentina can ensure not to head down the same path as in 2001.

Filed under Economy, International
Aug 2, 2012

Bush Tax Cut Extensions: Round Two

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Back in 2010, Republicans and Democrats battled over the extent to which the Bush Tax Cuts needed to be extended.  Democrats were in favor of extending the cuts, but only for income under $250,000.  They argued that Americans making over $250,000 did not need the tax break.  Republicans, on the other hand, felt that it was unfair to raise taxes on anyone in a poor economy, and that doing so would hurt growth.

Democratic hopes quickly faded after they came up short of the 60 votes needed to break a Republican filibuster in the Senate.  Just weeks before the cuts were due to expire and still without an extension, lawmakers were afraid that nothing would be done and no extension would occur.  Fearing voter anger that would come along with a tax hike, enough bipartisan support emerged for the Republican plan, allowing it to be passed and eventually signed by President Obama.

The current problem?  The extension agreed to in 2010 was only for two years, meaning the tax cuts are set to expire at the end of 2012.  Obama has recently voiced support for the original Democratic plan, saying that the extension should continue only for incomes under $250,000.  G.O.P presidential candidate Romney, on the other hand, wants to extend the cuts for all income levels.

It sounds like the same battle as before, but one key component of the debate has changed: timing.  Since the cuts will not expire until after the election, Obama has the advantage of making tax policy an issue leading up to the election while not having to make any controversial decisions until afterwards.  And even if Romney wins, Obama will still hold office until January 20th, which is 20 days after the cuts expire.  Win or lose, Obama will have the last say on the cuts.

Politically, this puts Obama in a better situation than before.  Back in 2010 and after the Republicans effectively killed the Democratic plan, Obama had two options.  The first was backing the Republican plan and allowing an extension he only partially agreed with.  The second was creating a stalemate that could potentially result in an across-the-board tax increase.  Obama avoided the latter because it was politically dangerous.  After the election, whether he wins or loses, Obama will not have to worry as much about voter retaliation and will likely not give in to the opposition as easily.

Still, Obama failed to pass the Democratic plan in 2010 when Democrats controlled both houses.  This time around, Republicans control the House of Representatives.  Since the Constitution mandates that “all bills for raising Revenue shall originate in the House of Representatives”, Republicans will have significant control over any bill that is proposed.

Obama will be in a more powerful position to deal with this controversial issue after the election.   However, the Republicans will have a more profound say on any proposed tax bill than they did in 2010, when they controlled neither house and had to use filibuster power to prevent Obama’s proposal from passing.  Both sides are stronger, meaning the nation should be ready for a more hard-fought and deeper discussion over the extensions when compared to 2010.  American voters shouldn’t expect this issue to disappear anytime soon, as a long political battle seems sure to come.

 

Jul 10, 2012

Opinion: Multiple Paths and Apparent Paradoxes

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German Chancellor Angela Merkel has advocated the use of cost-cutting austerity measures to solve economic woes in countries like Greece.  The measures, she argues, will create more fiscally prudent countries.  French President Francois Hollande has been a vocal critic of Angela Merkel’s policies.  Instead, he wants to use additional government spending to stimulate troubled economies, allowing Europe to grow out of its problems.

Germany wants governments to save.  France wants them to spend.  While embracing both philosophies simultaneously creates an apparent paradox, Europe has committed to both austerity and stimulus in combating the debt crisis.

Critics abound, arguing that austerity will undermine attempts at stimulus and vice-versa.  Instead of two different plans muddling the way forward for troubled countries, these critics believe a direct solution will provide a more feasible route to economic security.

By railing against the complexity of the currently proposed solutions, thees critics demonstrate their own lack of foresight.  If Europe’s problems only required a simple solution, the problem would already be solved.  In reality, the debt crisis is a complicated problem that will likely require a multi-faceted solution.  Suggesting a solution is invalid because of its complexity is a flawed argument.

Critics may still latch to the fact that as an apparent paradox, the two-pronged solution to the debt crisis is doomed to failure.  But this argument is, once again, too simple.  Upon further inspection, a solution to what is only a surface-level paradox can be discovered.  Austerity and stimulus can coexist because they can be applied to different sectors of the economy.  Beleaguered sectors such as banking and finance may need extra capital, but that does not ruin attempts at austerity.

Bickering and disagreements lead to polarization, and polarization usually translates to a one-sided approach when dealing with large-scale affairs. Europe can not afford to let that happen.  If a mixture of austerity and stimulus sounds like a feasible plan to help save beleaguered nations within the Eurozone, then this plan should not be criticized based on faulty logic.

Jun 27, 2012

The Export Buffer: Why the Chinese and Indian Economies Have Slowed

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In the past few months, the inevitable happened. After the economies of China and India had mostly survived the recession, new numbers came out and both economies have slowed down. Considered to be the two largest developing economies, China and India were expected to be the two big economic engines to pull us out of the worldwide economic slump. However now it is clear that with Chinese growth in the first quarter of this year down and Indian growth over the past year down, things are not looking up for these two developing countries. So why has this economic downturn took so long to hit India and China?

It is my thesis that this delay is caused primarily by a sort of “export buffer.” China is the world’s largest exporter of goods, and India is arguably the largest exporter of services. China’s economy is entirely dependent on exporting cheap goods. Because of cheap, readily available labor, China is able to produce goods cheaper and quicker than anyone else. What this means is that when the world took an economic downturn, we still needed to buy our goods somewhere. And because they were cheaper, though lower quality, in China, the world bought more goods from China. In turn, China solidified a position as an economic player and as he world’s largest exporter of goods. This allowed China to continue to grow and create more and more goods. However, now China has reached a saturation point. Enough of the goods that we all have come from China, and the amount of goods we are buying has remained fairly steady. In fact, as many people are suffering from “recession fatigue” we have habitually become more frugal. This means that Chinese growth is starting to slow because most of our purchasing is already transferred to China.

The same idea can be applied to India, except mainly with services. Despite the fact that most of the work force is in agriculture, the primary economic mover is in services. And many of these services are exported. One of the primary service industries in India is the information technology services industry. Making up much of our customer support these days, India has capitalized on the large educated, English-speaking population. But again, a saturation point has been reached. We have already outsourced many of our information technology services, leaving little more that can be outsourced. This has left India with a slowed economic growth and arguably its biggest economic problem: poverty. In the past decade, many people have been able to move out of poverty and find work in services, therein stimulating the economy. But with an unemployment rate near 10% and and over 20% of the population below the poverty line, India has run out of international sources of economic stimulation and has a population which cannot afford to provide a domestic boost. And with rampant government corruption interfering with getting aid to the destitute, it does not appear as if more people will come out of poverty anytime soon. This leaves Indian growth slowing, with no international help and no domestic help.

India and China clearly demonstrate the validity of this “export buffer.” Economic catastrophe has a delayed reach to countries which can cheaply export goods and services. So while India and China long looked as if they would be the drivers to get the rest of the world out of its economic doldrums, alas it is clear that the recession has hit them at long last. To be clear though, China and India are still growing at a very fast rate, but it seems as if this growth will slow. With the situation in the Eurozone getting worse and worse and our own domestic situation worsening, the decline of growth in China and India is potentially detrimental to the world economy as a whole. At the advent of the recession, many predicted that with it, China and India would indisputably come out on top, and a new world economic order would be established. While this certainly still can happen, China and India will need to get their acts together in order to carry through. They both need to find a way to establish their domestic markets as economic drivers and both need to work out the issue of rampant poverty. If they can do so, and become planted as not just economies which can grow, but ones that can remain stable, then they will come out on top.

Filed under Economy, International
Jun 26, 2012

A Greek Government Forms

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Greek leaders were able to successfully form a coalition government after days of negotiations that followed Greek elections last weekend.  New Democracy, a center-right party, won the highest percentage of the vote and will lead the coalition.  New Democracy’s leader, Antonis Samaras, will become the new Prime Minister.

New Democracy will partner with two other parties to form this coalition: Pasok and the Democratic Left.  Both of these parties are further to the left than New Democracy, but all three are still pro-bailout.

Anti-austerity and anti-bailout party Syriza was not announced as a member of the coalition, but its leader did make it clear that Syriza would play the role of a vocal opposition.  Originally, Pasok said that it would not enter into any coalition that did not include Syriza, but this ultimatum was not followed through with.

An interesting thing to note is that the Democratic Left did not need to enter the coalition.  New Democracy and Pasok alone could have created a majority in the Greek Parliament.  However, this majority would be very weak, with 152 of the 300 seats.  Including the Democratic Left strengthens the coalition by increasing the majority.

This new Greek government, without Syriza, means that Greece will continue its path to austerity.  Greece still is facing a frightening array of economic problems, but hopefully this government will have the capacity to improve Greece’s future.

Filed under Economy, International
Jun 20, 2012

Greek Election Results

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When Greek Parliamentary elections were last held in May, the sudden rise to prominence of leftist party Syriza left the former ruling coalition short of a majority.  Attempts at making a new coalition ended in failure, which forced another election to be held.  This time around, Greek leaders do not have the luxury of calling for another round of elections.  Greece is in danger of running out of money if fiscal problems are not addressed in the coming weeks, and a government must be formed as soon as possible in order to deal with these problems.

Greece’s politics were too divided for any party to gain a majority, but it was clear in the days leading up to the election that the two parties vying for the largest percentage of votes were center-right New Democracy and leftist Syriza.  These two parties represent the two main camps in Greek politics right now.  New Democracy still supports the austerity programs that have come along with the bailouts Greece has received from its lenders.  Syriza, on the other hand, does not.

The results were close, but New Democracy managed to win a plurality of the vote with about 30% support.  While that means they will have the largest representation in Parliament, New Democracy is still about 22 seats short of a full majority.  That means New Democracy must form a coalition with another party in order to have a majority.  But which party?

Interestingly enough, New Democracy used to be in a coalition with a center-left party called PASOK.  That coalition would still be viable, but PASOK has made it clear that they will not enter into a coalition unless Sryiza also joins.  With New Democracy and Syriza wanting two different paths for Greece’s future, this three-party grand coalition would be difficult to manage.

New Democracy has other options.  They could try to convince several smaller parties to join together in order to form a coalition without PASOK or Syriza.  Then again, that could lead to a dysfunctional government as well.  Additionally, New Democracy leaders could plead with PASOK leaders to form a coalition without Syriza, but there is no guarantee that will work.

What parties will emerge as part of the coalition is not now known.  However, Syriza’s second place finish means that it is unlikely Greece will divert from its current course towards austerity anytime soon.  While there is some security in that knowledge for the many European leaders who feared a radical shift, it is clear that Greek leaders still have a lot of work ahead of them.

 

Filed under Economy, International
Jun 17, 2012

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