Progress | Centre-left Labour politics

No Grexit

By law, there are no opinion polls conducted in Greece in the fortnight running up to an election. So the latest data we have on the likely outcome of the poll re-run taking place on Sunday is from the back end of May. At that time, the pro-austerity party New Democracy polled a whisker above the anti-austerity party Syriza at 28 per cent and 27 per cent respectively.

Both have benefitted from the re-running of the election; the corresponding figures for the outcome of the first election held on 6 May were 19 per cent and 17 per cent.

While we may not know the polls, there are some other hard truths out there, which can help us to work out what is likely to happen.

1. Greece – at least now – does not want to leave the euro. The leader of Syriza made it clear in a carefully timed article in the FT on Wednesday that he has no intention of doing so; popular support for the single currency remains high.

2. As I argued in a recent New Statesman article, it’s not easy to work out how Greece could be forced out of the euro if they don’t want to go – any change to the countries in the euro is a change to the treaties so would require all countries, including Greece, to sign up to it.

3. The Germans want New Democracy to win and so have been ramping up the scare stories of the catastrophic consequences if they do not, letting the idea of a disorderly exit from the euro flourish.

4. This is causing great instability in financial markets and volatility in the run-up to Sunday’s election, including flights of capital out of Greece, concerned at the possibility of an instant exit and devaluation.

5. This is music to the ears of British Eurosceptics, in the press and elsewhere, who want the single currency to fail and so delight in any instability.

6. With the possible exception of British Eurosceptics, it is not in anyone’s interests for the instability in the markets to persist after the election results are known.

7. There are no plans for an immediate ‘Grexit’ that can be implemented swiftly by anybody.

8.  If New Democracy win, and manage to form a pro-austerity coalition, the opposing grassroots forces in Greece will experience immense frustration, having had huge momentum and got so near victory, that there could be significant unrest.

9. If Syriza win, and manage to form an anti-austerity coalition, they will operate in a very febrile market environment, unable to attract capital until they have shown they can stabilise the national finances. Although they have policies to do so, notably wholescale tax reform, they will take a few years to bear fruit.

10. Greece needs external financial support both to service its debts and to pay part of the costs of routine public services.

Put all this in the mix and turn the handle and what comes out does not look, to me, like a Greek exit from the euro. Rather it looks as if incentives are very clearly aligned, regardless of who wins the election, to calm the whole thing down.

I predict a sudden outbreak of pan-European unity, combined with a negotiation designed to save face – for example a pushing back by decade(s) of the obligation to pay back historic debt combined with a decision to withdraw budget support only as domestic reforms bear fruit.

Syriza knows this, which is why it is onto a winner. Their plan is to free-ride, and although it may not feel much fun in that economy at the moment, it is in their long-term national interests to do so, whatever others think. Which is proof if any were needed that countries in the euro are still sovereign nations.


Kitty Ussher is a research fellow at the Smith Institute and a former economic secretary to the Treasury. She writes the monthly Economy column on Progress and tweets @KittyUssher


Photo: Alexei & Verne Stakhanov

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Kitty Ussher

is managing director of Tooley Street Research and a contributing editor to Progress

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