Greece, once again, is in turmoil after teetering on the edge of economic collapse two years ago amid mountainous bad debt following years of excessive government spending.
The unfolding drama could put the plans of international investors, including the UAE, back on the sidelines.
Now after six years of severe austerity measures that have included pension and salary reductions, many Greeks have had enough and look set to vote a radical left-wing anti-euro party into power.
That outlook is the result of the fact that on Monday, Greece put itself on the path of more political and economic uncertainty after the country’s parliament failed to elect the presidential choice of the ruling party led by the prime minister Antonis Samaras, opening up elections, probably on January 25, in which the left wing anti-European party Syriza may win according to polls. If they do, that would put the country’s future inside the European Union in doubt because the party, led by Alexis Tsipras, 40, does not accept the austerity measures that were forced onto the country by the EU and the IMF when they bailed the country out to the tune of €240 billion (Dh1.07 trillion).
Mr Samaras failed in his third and final attempt to persuade parliament to back his candidate for the role of head of state. Only 168 policymakers in the 300-seat chamber backed his nominee for president, Stavros Dimas, short of the 180 votes required. Under the constitution, the legislature will now be dissolved and a date for elections set within the next 10 days. Mr Samaras says he will ask for the election to be held on January 25.
This year the UAE pledged to invest almost US$10bn to renovate the ageing airport in Athens although it is understood it has not yet made the investment. Foreign backers such as the UAE, whose sovereign wealth funds collectively put them among the world’s biggest investors, are likely to refrain from buying assets in earnest in Greece until it becomes clear which party wins, analysts say. And if it is Syriza, as polls suggest, and they renege on paying back money the government owes to European countries and throw austerity measures out the window, the country could be in the economic wilderness for years to come, they say.
“Greece needs political stability to advance economically and the upcoming elections would be the country’s most serious test toward that goal,” says John Sfakianakis, the Riyadh-based director for the GCC at Ashmore Group, an emerging market asset manager headquartered in London.
“It’s impossible to ask from investors to be confident of a country when the future and stability of a nation is tried, yet again; Greece would need to show now how it wants to be perceived internationally. Political stability and continuity is paramount.”
Few imagined the southern European nation would once again face another cliff-hanger so soon after the country was thought to have been over the worst. Since 2012, Greek stocks had rallied more than 115 per cent before the latest crisis erupted this month. In the week beginning December 5, when Mr Samaras called snap presidential elections, the stock market fell by more than 20 per cent. Up until then, investors had concluded that the country had ridden the crisis out as green shoots of economic growth started to sprout. The nation’s economy is set to grow 2.9 per cent in 2015 after growing 0.9 per cent in 2014 following years of recession when unemployment at one point reached 60 per cent, according to the IMF.
The country’s debt crisis originated in the 2008 global financial crash, in the aftermath of which it was revealed that the Greek government deficit was four times the size of what was permitted by euro-zone rules. Over the years, the Greek government had been overspending on the salaries of public employees among other things, while economic output failed to keep up with the spending.
Greece’s travails reached a peak in 2012 when the EU and the IMF bailed it out and creditors were forced to write down €100bn of privately held bonds. Talk of Greece exiting the European Union and euro, threatening the single currency bloc, were quashed when the European Central Bank governor Mario Draghi said he would save the euro at all costs.
With the reassurances and signs of growth many investors started to reassess Greece once more, a nation of 11 million best known economically for shipping, tourism and agricultural products such as olive oil and pistachios. In May, it was revealed that Abu Dhabi’s Al Maabar would help to spearhead what could become Europe’s largest mixed-use development, a €7bn project to redevelop the former international airport in the Greek capital. The Athens project was expected to create as many as 30,000 jobs during development and 50,000 on completion.
That project as well as any other hopes investors had of swooping to scoop up cheap Greek assets may be put on hold for a while until the new government reveals how it will deal with the country’s creditors, who are owed €322bn. The German bank Deutsche Bank is already betting that if Syriza wins, a confrontation between the new government and its creditors will erupt, causing instability in the euro zone and Greece in 2015.
It is not only in Greece that radical parties are in the ascendant. Both extreme right-wing and left-wing groups are on the rise as the economic malaise continues to plague Europe, economists say. During the European Parliament elections this year far-right parties such as the Front National in France and the Jobbik Party in Hungary made notable advances while in Spain the popularity of the anti-establishment Podemos party is gaining ground in opinion polls.
The future of the union may be put to the test by the outcome of Greece’s political elections and whether or not the EU will be in the mood to forgive more debt to save itself, they say.
“I remember when the euro was created we were told that it was a bad economic idea but it was a step towards a European union,” says Xavier Sala I Martin, an economics professor at Columbia University in New York. “[We were assured] we would be better brothers, we would become more friendly, the historical wars within Europe would disappear.
“But if you travel around Europe today, there is less brotherhood than ever,” he adds.
That outlook is exemplified by Germany’s implicit threat to Greece following Athens’ failure to elect a president.
The German finance minister Wolfgang Schaeuble warned Greece against straying from a path of economic reform, saying any new government in Athens would be held to the pledges made by the current government.
“The tough reforms are bearing fruit and there is no alternative to them,” Mr Schaeuble said after the decisive third round of voting in parliament.
“We will continue to help Greece help itself on its path of reform. If Greece takes another path, it will be difficult,” Mr Schaeuble added. “New elections will not change the agreements we have struck with the Greek government. Any new government will have to stick to the agreements made by its predecessor.”
Mr Martin is unsurprised.
“Germans are blaming the Greeks for their problems, the Greeks are blaming the Germans for their problems. The northern [European] people are saying, ‘Why should we bail out the southern people?’ he says.
“The euro will not collapse for technical reasons but it may collapse for political reasons.”
mkassem@thenational.ae
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