Greek PM George Papandreou appears to have finally gone too far and exhausted the patience of both his own party as well as the public. The most likely scenario (at least for now – things are changing all the time) is that he will resign in favor of a coalition led by the finance minister and deputy PM, Evangelos Venizelos. Mr. Venizelos' mandate will be to negotiate the second bailout with the EU/IMF and hold elections by February 2012. So far, it is not clear how much of a "unity" government this will be – the leader of the opposition wants elections within six weeks and has repeatedly ruled out co-governing. But after a chaotic last few days there is some order emerging and so I wanted to step back and ask two questions: How did we get to this? And what does it mean for the country?
The why is both easy and difficult to answer. It is easy because there are two obvious answers. First, Greece is getting worse: fiscal targets are being missed, capital markets remain closed, the economy is in a deep and prolonged recession, the public is angry, continuous strikes are paralyzing the country, the international media is vitriolic in its criticism of Greece, the country is isolated and debt restructuring is underway. As PM, Mr. Papandreou is responsible: "the buck stops here."
Second, Mr. Papandreou dragged, for the third time in a year, the country into a multi-day travesty that he himself set in motion. First he did it in November 2010 by threatening to call national elections if he did not "win" local elections. The second time was in June 2011 when he reportedly offered to resign and then retracted that decision and merely reshuffled his cabinet. So when he announced a referendum before saying there will be no referendum after all, it was just too much. Everyone got tired of him.
These are the easy answers, but as I said, they do not tell the whole story. And they also fail to answer the deeper the questions: Why did Mr. Papandreou fail? And what does Greece look like after him?
Mr. Papandreou will be remembered as the man who signed the "memorandum" with the troika in May 2010. But his legacy will be split between two opposite views: some Greeks will blame him for signing the memorandum; and others will blame him for not implementing it. Where one fits on that spectrum depends on one's political leanings.
One view is that Mr. Papandreou took Greece down the wrong path from the start. According to this view, the mistake was to sign the first bailout in May 2010 - that is the original sin. Having sacrificing Greek sovereignty to bail out foreign banks, Mr. Papandreou took progressively harsher measures that punished the middle class and promised to sell out the country – all in defense of a flawed economic model and merely in the interest of “foreign capital.” According to that view, there is some alternative, which is not precisely clear, that would prevent such misery being imposed on the Greek people. Readers of this blog know I don’t buy that view at all.
On the other end, the critique against Papandreou will be not that he signed the “memorandum” but that he could not execute it fully. His failure was twofold: he never won over the Greek people and he was never able to retain discipline in his party. The electorate was split, broadly speaking, into three groups: those who opposed reforms because they were threatened by them; those who supported reforms because they saw them as necessary; and those who were indifferent. In his party and administration there were clearly those who were highly supportive of change and those who feared bold reforms that would undermine their political careers. Party division further slowed the pace of change.
What happened is that Mr. Papandreou’s reform agenda went too fast for the anti-reform group but too slow for the pro-reform group – thus, he alienated both. And that alienation, and sense of stalemate and frustration, trickled into the population at large. The failure was thus a failure to create momentum for reform. And by failing to win the people, he gradually lost his party too, creating a vicious cycle where lower popularity weakened political control which in turn created ineffective government that fueled unpopularity.
So where are we now? The problem is that the split in the public between those who favor reform and those who oppose it is as alive as ever. I, for one, expected that this period of making the case for change and of exposing the naked self-interest of the protesting class would have created greater critical mass favoring reform. Instead, the prevailing mood has been disappointment and disengagement, mostly centered on the PM and accusing him of incompetence. In other words, this latest political upheaval responds to the increased demand for competence, but it does not resolve the underlying question of what reform trajectory the country should be following.
What’s next? It seems Greece is headed towards elections. In the meantime, the focus will be on finalizing the details of the second bailout. It is not clear how “political” that process will be – what additional demands will be required for that second bailout and whether a fragile government would be able to negotiate and assent to those conditions. More importantly, elections can be a savior or they can be disastrous – as I noted in a previous post, the disappointment of the Greek public is so great that the two major parties are getting less than 50% combined in polls. If Greece needs a national unity government, how will it come about? If the streets are any sign, there is considerable opposition to reform and there is considerable fatigue with the current path – how can such widespread opposition produce a political configuration that is conducive to the type of aggressive reform that the EU and the IMF will require?
These are the questions that are yet to be answered. Greece needs serious leadership to get out of this mess. It has gotten rid of a leader widely seen as unserious. But what comes next is not necessarily better. It can be – but it can also be worse.