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A Grécia a Condicionar a Europa





A evolução da crise grega está a condicionar a política na Europa, na análise da Stratfor. “While the eurozone will continue to face financial threats in the future, the political risks will be greater. The Greek crisis has weakened Euroskeptic and anti-austerity forces in the European periphery, but this will probably be temporary. To regain momentum, these parties will probably shift their focus away from economic issues and center on the fight against corruption and on criticism of the mainstream parties. But the situation in Greece has convinced anti-establishment forces that the eurozone has to be reformed, and the calls for countries to resist what they perceive to be a German-tailored currency union will not fade. Quite the opposite: After the dust settles in Athens, all the conditions remain in place for the pendulum to swing back yet again and for anti-establishment forces to regain strength.”

The Greek Crisis Has Reshaped European Politics

Stratfor . Analysis . July 29, 2015

 

European flags fly in front of the European Parliament in Strasbourg. (GEORGES GOBET/AFP/Getty Images)

Forecast

  • After the Greek crisis ends, anti-austerity parties will remain influential though somewhat less popular in three former bailout countries: Spain, Portugal and Ireland.
  • The coming electoral cycle in the European periphery will lead to fragile political alliances, especially in Spain, and financial stability will be directly connected to political developments.
  • The coming electoral cycle will also delay any compromises on debt relief with Greece until at least the end of the year because Spain, Portugal and Ireland will continue to oppose leniency with Athens.

Analysis

When the European crisis began, Spain, Portugal and Greece had center-left governments and Ireland was ruled by a centrist coalition. To cope with the crisis, these administrations were forced to introduce deep austerity measures that alienated citizens. As social discontent grew, populaces expressed their frustration by voting against the incumbents and for their conservative opponents in the 2011-2012 election cycle, the first since the crisis began. In the months leading up to the election, or shortly after the change of government, all four countries requested financial assistance from the European Union and the International Monetary Fund.

The European periphery is about to enter the second electoral cycle of the crisis. Elections are scheduled for October in Portugal, for November or December in Spain and for sometime before April in Ireland. In early 2015, it looked as if voters were poised to punish the conservative governments this time and that the political pendulum was swinging back to the left. However, the left has changed. Instead of the traditional pro-EU center-left parties, new parties combining a rejection of austerity measures with strong anti-establishment rhetoric and sharp criticism of several elements of the process of EU integration rose quickly in opinion polls.

The left-wing Syriza party’s victory in Greece’s January general elections seemed to be an early confirmation of the emerging trend. Syriza campaigned on a promise to end austerity measures and renegotiate Greeces’s debt, and it criticized Germany’s leadership of the European Union. Meanwhile, in Spain, the anti-establishment Podemos performed strongly in opinion polls, and in Portugal, the Socialist Party saw a boost in its popularity after it adopted a tougher anti-austerity stance. In Ireland, support for the left-wing Sinn Fein grew almost without pause between late 2011 and early 2015. And the emerging parties watched Greece closely. Podemos leader Pablo Iglesias visited Athens during the Greek electoral campaign, while pictures of Syriza chief Alexis Tsipras with Sinn Fein leader Gerry Adams were distributed during Sinn Fein events.

But Syriza’s victory came too soon, and the Greek crisis accelerated too quickly. Athens’ push to renegotiate Greece’s debt found little support in the European Union, and the economic situation continued to deteriorate. In mid-July, Athens requested a third bailout package and agreed to introduce new spending cuts and tax hikes after banks were forced to close and as some creditors suggested Greece’s membership in the euro be suspended.

As the Greek crisis escalated, the conservative governments in Spain, Portugal and Ireland heavily criticized Syriza’s negotiation strategy and opposed any leniency with the administration in Athens. These governments began to use the situation in Greece for electoral gain, arguing that their countries would face a similar crisis should people vote for anti-austerity forces. Indeed, part of the Eurogroup’s resistance to compromise with Greece was driven by the desire to prevent Syriza from setting a precedent for similar parties elsewhere in the eurozone.

Perhaps for that reason, Syriza also lost the support of its former anti-austerity allies. Podemos progressively softened its rhetoric regarding the need to restructure the Spanish debt, while party members tried to explain that Spain’s financial situation could not be compared to that of Greece. In early July, Portuguese Socialist leader Antonio Costa said “the Socialist Party is not like Syriza” and that “each party and each country has to make its own decisions.” In Ireland, Sinn Fein remained silent after Athens requested a third bailout, but Syriza’s change of direction represented a political defeat for the party.

Meanwhile, the popularity gap between the conservative forces and their left-wing challengers began to shrink and, in some cases, even reverse. Opinion polls released in Portugal in mid-July show that the ruling center-right alliance (the Social Democratic Party and the People’s Party) and the Socialist Party are in a technical draw. The Socialist Party had been leading by 11 percentage points in March.

In Spain, the incumbent Popular Party and the Socialist Party are in close competition for first place in the polls. Podemos, which was Spain’s most popular party at the beginning of the year, is currently in third place. In Ireland, support for Sinn Fein is currently between 17 and 20 percent, down from 26 percent at the start of the year. 

Strictly speaking, most people in Spain, Portugal and Ireland have domestic issues in mind when voting, and Greece is probably not a primary source of concern for them. The three former bailout countries are growing again, and unemployment is declining (slowly in Spain and Portugal, and relatively quickly in Ireland), which is boosting the conservative governments in opinion polls. However, Greece is permanently present in the news, and the governments in Madrid, Lisbon and Dublin are using Greece as a cautionary tale against their left-wing opposition parties. If Syriza’s victory came too soon, its reward will come too late: Greece could eventually receive some form of debt relief, but it will probably happen after the rest of the bailout countries hold elections.

Broken Political Systems

This political swing will have domestic and international repercussions. At the domestic level, political fragmentation will lead to the formation of potentially fragile coalition governments. Spain will be the most dramatic case of the three. The country’s traditional two-party system is a relic of the past, and the next government in Madrid will be an alliance comprising one of the two mainstream parties and at least one of the two political forces that became more popular because of the crisis, Podemos and the centrist Ciudadanos. This will complicate decision-making, since the traditional parties are not used to sharing power at the national level.

Portugal is more accustomed to coalition governments than Spain is, but the election could lead to a hung parliament. During the speech in which he announced the date for elections, Portuguese President Anibal Cavaco Silva said it was extremely important that the next government have a solid majority in parliament. This suggests that the president could push the center-right and center-left to form a grand coalition. However, the two will probably refuse to form an alliance, at least initially. As a result, the October elections could be followed by weeks of political negotiations to form a government. In Ireland, recent opinion polls show that support for the two largest parties is stagnant, while smaller, independent parties are on the rise. One in three Irish voters is likely to vote for relatively small parties, which could increase divisions within the Irish parliament.

Despite these political changes, anti-austerity parties will remain influential. Regardless of their composition, after years of fiscal consolidation efforts, the new governments in Spain, Portugal and Ireland will be under political pressure to reduce taxes and increase spending. However, if they give in to this pressure it will create conflict with the European Commission. Brussels has recently shown more flexibility when it comes to enforcing the European Union’s fiscal targets, but it is still pushing countries in the European periphery to reduce their deficits.

More important, the new governments could renew concerns about the sustainability of their debt. This is particularly true in the case of Portugal, a country with high levels of debt and meager rates of economic growth. Portugal’s debt is 130 percent of its gross domestic product, the third-highest ratio in the eurozone after Greece and Italy. In addition, most of Portugal’s debt is owned abroad. Facing only modest prospects for economic growth (the European Commission forecasts Portuguese growth to be below 2 percent in 2015 and 2016), Portugal will have to deal with a high debt-to-GDP ratio for a long time to come. This should not be a problem if the government in Lisbon is solid and the economy is stable. But political fragility and a relaxation of fiscal targets could reignite fears about the sustainability of Portugal’s debt, just as they did in Greece.

If a center-right government forms in Spain, it will clash with regional governments that are currently ruled by the center-left. Center-left governments will push to slow the pace of deficit reduction. If a center-left government forms, the new administration in Madrid will increase public spending and potentially reverse recent reforms in labor markets and the banking sector. As in Portugal, the fear of a reversal of previous measures could once again trigger concerns about the health of the Spanish economy and push borrowing costs up.

Ireland will be in a somewhat more stable situation because there aren’t any significant differences between the two largest parties on economic issues. However, all of the political parties are currently promising to increase public spending without raising taxes, and the money will have to come from somewhere. The main challenge for the new Irish government will be to find a way to follow through on its promises to the Irish voters while also achieving a more balanced budget. 

Finally, the coming electoral cycle in the European periphery will affect political calculations in Greece. The government in Athens is currently negotiating a third bailout package with its creditors. After breaking most of his electoral promises, Greek Prime Minister Alexis Tsipras wants to secure a promise of debt relief from Greece’s lenders, and he is considering the possibility of holding early elections to get rid of the most rebellious members of his party and form a more cohesive government.

Having a concrete promise of debt relief would certainly help Tsipras during an electoral campaign. But Spain and Portugal will continue to oppose debt relief for Greece, at least until the electoral process is over. This means that Greece will not see a proposal for longer maturities and lower interest rates until at least the end of the year. As Greek households begin to feel the impact of higher taxes, Tsipras’ popularity could take a hit and affect his calculations on when and if to call elections.

While the eurozone will continue to face financial threats in the future, the political risks will be greater. The Greek crisis has weakened Euroskeptic and anti-austerity forces in the European periphery, but this will probably be temporary. To regain momentum, these parties will probably shift their focus away from economic issues and center on the fight against corruption and on criticism of the mainstream parties. But the situation in Greece has convinced anti-establishment forces that the eurozone has to be reformed, and the calls for countries to resist what they perceive to be a German-tailored currency union will not fade. Quite the opposite: After the dust settles in Athens, all the conditions remain in place for the pendulum to swing back yet again and for anti-establishment forces to regain strength.

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