Greekonomics

Paul Mason
BBC Economics editor, Newsnight

I've interviewed Greek leftist leader Alexis Tsipras once, on a street demonstration. He is, as all commentators say, very smart. Too smart to do something as dumb as take over the government of Greece at this juncture.

In any case, the unwillingness of the Greek communist party, the KKE, to participate in a Syriza-led left government means Tsipras will, like the leader of New Democracy, fail to form a coalition.

So the likely outcome of the week is a presidentially appointed technocratic government, which will rubber stamp measures needed to remain within the rules of the EU bailout, before a new election is called either in June or in Autumn.

What the Eurozone elite and political mainstream then hope is that Greeks "come to their senses", and after a couple of months go back to the traditional parties, New Democracy on the right, and Pasok on the left. Unfortunately this is based on a misunderstanding.

The European centre does not have a very good understanding of Greece for a reason: its only roots in Greece are the mainstream media and the mainstream politicians, whose credibility has collapsed (the Troika itself is, like all mainstream Greek MPs, mostly closeted behind shutters and security guards).

Syriza leader Tsipras (left) and New Democracy leader Samaras face a fiendish political conundrum

That is not to say the parties beyond the centre have any better handle on the situation: it is physically disorienting to be propelled to within two percentage points of political power when you have spent the last two years linking arms in the face of tear gas and police batons - and this is exactly the experience many of Syriza's new MPs have been through.

The best way to orient oneself in the Greek situation now is through a series of scenarios. In Scenario One, the voters do, indeed, swing back to New Democracy so that it gets into the mid-20 percent, and Pasok comes second. Then they have the numbers to form a government.

But that's where Greekonomics kicks in.

For the un-noticed problem with New Democracy (ND) is that it has never, in its heart, supported the Eurozone-imposed austerity plan. I have been told publicly and even stronger in private by its economic experts that the Troika plan, with its reliance on tax rises to obviate even deeper spending cuts, will not work.

The Greek centre-right would have preferred a much faster and steeper cut in public spending combined with tax cuts, and - in its head at least - much bigger and faster proceeds of privatization. That's why they wanted an outright mandate - to attack what they see as the vested interests of civil servants and public sector unions. Instead their vote collapsed.

And that's where you run into a problem with Pasok. Pasok still (just) has a mass base. Some of that mass base are the very workers and civil servants whose world would end if ND were able to unleash the programme it wants. Hence any New Democracy/Pasok coalition would fall apart, with the technocratic faction of Pasok claiming (with some justification) that ND was trying to renege on the Troika-brokered agreement, which includes a sharp and prolonged tax hike.

Can Greek politicians rescue the economy?

Scenario Two is that, having stood aloof from government in the aftermath of the 6 May vote, the left, Pasok and the Democratic Left (a split from Syriza historically associated with Eurocommunism) attempt to form a left government of national unity, relying on de-facto support, but not participation of Syriza and the KKE. This scenario is anathema to every one of the parties I just listed, but has a logic if things spiral out of control: it would probably need some big, historic, intellectual figure of the Greek left to figurehead it, and one of the salient facts in Greece is the absence of any kind of left-Caudillo figure.

Scenario Three is the formation of a right-of-centre coalition. This now looks very unlikely: New Democracy split over the bailout; LAOS - the right wing nationalist party - collapsed after participating in the pro-austerity coalition, and Golden Dawn is so extreme that it's unlikely to get any bigger without a complete collapse of social order.

None of these scenarios creates stable government for Greece; so what would have to change to bring the situation to a resolution?

One route out would be the EU effectively designing, from above, an escape route for the Greek mainstream parties - completely rewriting the terms of the second bailout to give Samaras or Venizelos something to come back with - a piece of paper - saying: we saved the country from collapse, again, and this time we really did get the Germans/French to shoulder the pain. This would most probably take the form of "Public Sector Involvement" - ie a writeoff of Greek debts to the ECB and IMF.

The future of Greece hangs in the balance

A second route out would be some form of soft, presidential coup (I am not advocating it!). That is, the parties effectively realizing that to be in power is to commit political suicide, connive in the prolongation of a presidentially-appointed technocratic government which takes the most contentious decisions on privatization, immigration, cuts etc. But that government would still be working to an EU/IMF designed script, and if the script leads to catastrophe then it simply opens the way to a decisive, populist swing by the electorate to the left or right. (In this regard, the experience of Hungary's technocratic government, which led to Viktor Orban, and the Carlos Mesa government in Bolivia, which led to Morales, are worth looking at.)

The problem is, time marches on. And the Greek economic story is not just a question of designing a strategy, it is an execution story: that is it relies on relentless pursuit of goals and targets - whether they're ND/Pasok goals or Syriza/KKE goals - by a civil service and a set of ministers who can actually rule. It will be very hard for a technocratic government to pull the levers of power because so much of Greek politics has been based on patronage.

So we are back to the same problem that has dogged Greece. It cannot stay in the Euro without abiding by the rules. And the rules, as currently designed, will force the economy into a downward spiral and destroy social cohesion. Unless the EU/IMF take some kind of initiative that allows some form of viable coalition to emerge to implement some kind of "Plan B" you will sooner-or-later have a debtor-led default on your hands and most likely a prolonged social conflict