It is hard to understand why European leaders collectively expressed so much relief at the prospect of Greece forming a coalition government. It is not obvious how a coalition between two old rivals – the centre-right New Democracy, which won 29.7 per cent of the vote, and the Socialist Pasok alliance, which came third with 13 per cent of the vote – will alter the Greeks’ economic predicament. True, the EU-IMF reward for the two pro-bailout parties is to give Athens more time to meet its fiscal targets. But this can hardly be considered a radical solution to a chronic problem. Greece has already agreed to two rounds of hugely unpopular austerity packages that include public sector job cuts and pension reductions in return for bailout money from the EU-IMF. It has twice persuaded private borrowers to take haircuts — once by as much as 74 per cent and the second through an ingenious bond swap deal that would halve its debt. Yet Greece is now in its fourth year of recession and unemployment is at a staggering 21-odd per cent. So the country lacks the wherewithal to grow and generate the revenue to repay either private bondholders or soft lenders. Nor does it have, by virtue of its membership of the euro zone, access to the one solution that could help make its products and services more competitive: devaluation. So it is easy to predict more loan restructuring (a euphemism for an orderly default) and more bailouts unless austerity conditions are either phased out or supplemented with growth-enhancing policies.
All in all, it is becoming increasingly clear that Greece is suffering the consequences of monetary union, and the disease is spreading swiftly to its Club Med neighbours Italy and Spain, where bond yields touched historic highs. To be sure, the coalition between the centre-right New Democracy, led by the 61-year-old Antonis Samaras, and Pasok, led by the 60-year-old Georgios Papandreou, can be relied on to toe the European line. The fact that the two parties will have 170 seats in the 300-seat Greek Parliament will give them the necessary majority to do so. But both are experienced politicians and Mr Papandreou, the prime minister till 2011 who agreed to the deeply unpopular bailout agreements, must be acutely aware that they are, literally, on borrowed time. Indeed, it is no coincidence that the party with the second-largest share of votes (26.9) is the emphatically anti-austerity Syriza bloc, headed by Alex Tsipras. The charismatic Mr Tsipras has already made it clear that he would put up a stiff fight in Parliament to make good on his election promises to renegotiate the IMF/EU-imposed austerity package, halt debt repayments and expand social spending. Meanwhile, Spanish 10-year bond yields have, even after successive bailouts of its banking system, headed back up over seven per cent. Italian bond yields are not too far behind, either. Unless the new coalition can work with Europe to get Greece growing again, it is unclear how Europe can avoid further turmoil.